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In recent conversations with CIOs, portfolio management has been a recurring topic of interest, as IT organizations (ITOs) seek to optimize resource allocation and subsequently maximize return on investment. This also comes on the back of a recent CIO-CFO roundtable where the attending CFOs identified “transparency” as one of their greatest IT headaches. Visibility into the portfolio of work that consumes a large portion of IT resources helps facilitate that transparency and informed decision making.
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Portfolio management has increasingly become a popular IT executive conversation topic, as ITOs attempt to yield the greatest value from their scarce resources (i.e., money and people).
There are two fronts to this discussion:
Project portfolio. Less mature ITOs are formalizing the discipline of project/program management (PPM) and building out capability to reduce scope creep and deliverable slippage, which also provides the basis for reporting a consolidated view of IT projects. One CIO of a manufacturing company in the Midwestern U.S. is initiating PPM in response to the CEO’s demands for “a consolidated view of work being performed by IT across the organization.”
Those with a formal program management office (PMO) are attempting to integrate the informational output of the PMO with IT governance arrangements, thereby placing a magnifying glass on resource consumption and providing the basis for educated decision making. As the CIO of a Midwestern U.S. agricultural products company put it, “Help to separate demand from supply by adding baseline information when selecting new work.”
Application portfolio. This comprises the analysis of the application set for risk, value and architectural relevance, and has been especially evident in large, complex organizations with historically decentralized or loosely defined IT accountability. In one example, the head of IT strategy and architecture for an insurance company in Chicago had responsibility for reviewing the application portfolio against the above criteria and then thinning out the portfolio where possible. He noted that “the issue is now one of IT governance because the tough decisions about application retirement must now be sold to the business users and implemented.”
In both examples of portfolio management, the recent economic slowdown has provided the impetus to move more forcefully to target immediate benefits through the reduction of risk, duplication and cost. While this is the equivalent of gathering evidence to present a case, most CIOs are not viewing these activities as a one-off, and are instead assuming that they will foster a permanent change in behavior toward IT resources. Beyond that, there are varying views of longer-term architectural-based benefits associated with cost, compliance and agility.
CIO CALL TO ACTION
• Assign review and recommendation responsibility for both project and application portfolios to a PMO to increase its role in overall IT governance.
• Perform a detailed audit of applications and rate for value vs. risk (cost and consequences), using consistent and balanced criteria. See the September 2006 Executive Programs report “High Value, High Risk: Managing Legacy Portfolios.”
• Develop application life-cycle scenarios that require increased attention to retire, replace or remediate, and seek input from architecture/standards groups.
• Consider involving the architecture group to help identify underlying architectural services that can be leveraged for common infrastructure or integration.
• Inject portfolio information into annual budgeting and planning cycles and key IT governance arrangements. The real value from either an application or project portfolio is not just the information it provides but the actions taken.
• Anticipate backlash, as enterprisewide portfolio management challenges feudal or functional power bases, and be prepared to allocate and adjust resources based on governance style.
• Begin portfolio management using simple tools (e.g., expanded spreadsheets) to quickly illuminate the key financial and risk information before exploiting more sophisticated models.
BOTTOM LINE
Both project and application portfolio management are powerful tools that can help facilitate rational discussion around the usage of IT resources. They also assist in advancing architectural objectives and in increasing agility. But the real value of a portfolio exercise emerges from the organizational actions taken; and thus inclusion with balanced IT governance arrangements is vital.
Business Impact:
Successfully implementing portfolio management – whether it be project, program or application – provides both short- and long-term benefits in better managing costs, including avoidance and investments (via a more architected approach), as well as outcomes.
Additional Insights
• “Management Update: Managing a Federated Architecture,” Burke, B., December 2007 (Research)
• “Toolkit Presentation: Applications Portfolio Management Starter Kit,” Duggan, J. et al, April 2007 (Research)
• “Make IT Demand Governance Easier: Use Project Portfolio Management,” Gerrard, M., October 2006 (Research)
• “Portfolio Management; CIO Desk Reference Chapter 10,” Handler, R., October 2009 (EXP Research)
• “High Value, High Risk: Managing the Legacy Portfolio,” Hunter, R., Aron, D., September 2006 (EXP Research)
• ““How the CIO Can Increase the Value of the Application Portfolio,” Kyte, A., February 2009 (Research)