META Trend: Enterprises will adopt an enterprise portfolio management approach to strategically and tactically deliver business value, optimize all enterprise investments, and lay the groundwork for a technologically sophisticated business strategy. By 2007, integrated enterprise-level strategy/planning, architecture, and program management will become a key competency supporting enterprise portfolio management in 60% of Global 2000 organizations.
Leading CIOs who have already implemented one or more full cycles of IT PfM have significantly improved their organizations’ return on IT investment, according to a META Group survey. Their line-of-business (LOB) client executives state they now have information never seen previously, greatly enhancing their understanding of IT investment impacts and improving decision quality. The value of IT to the business is less frequently questioned, given the consistent, business-focused decision-making environment a PfM discipline fosters. Redundant projects can be identified and eliminated, and project scopes are changed or combined with similar projects to yield greater efficiency and effectiveness. Human capital resource use is optimized, yielding greater IT staff ROI. A common lingua franca vocabulary and prioritization processes are created around value, improving executives’ ability to make balanced, optimal value/risk/cost prioritization decisions (see Practice 2040). But getting started without the knowledge of previous lessons learned puts the newcomer at a disadvantage when it comes to PfM governance and implementation.
The PfM discipline has become the premier IT/business communication tool for optimizing IT investments. Leading IT portfolios will have project, asset, application, information, infrastructure, people, and process subportfolios. Through 2007, 60%+ of firms will exploit IT PfM, balancing transformational, growth, and maintenance resources. By 2008, consistent application of PfM approaches will be adopted by 20% of companies where IT assets are federated.
PfM (from an asset management perspective) will be applied with greater frequency to the current- and future-state asset portfolio (e.g., that which is in production) and will be linked to operational and other IT-centric asset views. Reaching mainstream status by 2008 (70%), PfM will become a key tool supporting integrated enterprise-level strategy/planning; architecture; program, change, and cost management; increased security/privacy requirements; and compliance mandates. During this same period, public- and private-sector policy outcome/IT investment relational analysis will become the basis for changing organizational structures to more accurately address evolving constituent needs.
Whether consciously or unconsciously, all organizations are investing and making IT spending allocations and commitments, sometimes with little or no direct business involvement. If organizations lack a formal PfM methodology and toolset, determining which business projects are funded, given high priority, and given ITO resources can lead to a protracted process whereby the allocation, commitment, and prioritization of resources are achieved by those with the perceived political clout. In essence, “the squeaky wheel” or the first-in/first-out approach often leads to the suboptimization and inappropriate rationalization of IT investments that will not maximize the greatest return on investment (see ED Practice 015). However, CIOs who understand, acknowledge, and embrace the lessons-learned rules of governance and a PfM discipline will achieve much greater IT ROI than their PfM-neutral or “agnostic” rivals (see Delta 2081 and Figure 1):
- Ownership of the portfolio must be an executive-level function to enable change, institute governance, and facilitate business decision making
- Organizations must be clear about the differences between PfM, program management, and project management
- IT PfM must be integrated into the strategic and tactical planning and budgeting ecosystem
- Portfolio analysis requires specialized toolsets and collaborative processes
- An IT PfM tool, with no clear IT PfM process, will not produce the anticipated benefits
- Investment prioritization criteria must be instantiated in strong IT PfM governance
- Mature IT PfM processes drive the need for portfolio-specific analysis toolsets
A PfM white paper titled “A Summary of First Practices and Lessons Learned in Information Technology Portfolio Management,” published by the Federal CIO Council (www.cio.gov/best practices), lists nine major PfM lessons learned in the public sector (and they are apropos for the private sector as well):
- Understand the differences and the relationship between PfM and project management, and manage each one accordingly
- Gain and sustain the commitment of executives and senior managers to make informed IT investment decisions at an enterprise level and to uphold them
- Establish and maintain an enterprise architecture to support and substantiate IT investment decisions
- Integrate IT PfM with the organization’s planning and budgeting policies, processes, and practices
- Clearly define and communicate the goals and objectives to be served by the IT portfolio and the criteria and conditions for portfolio selection
- Acquire and utilize portfolio, project management, decision support, and collaborative methodologies and tools
- Routinely collect and analyze data and information to assess portfolio performance and make adjustments, as necessary
- Carefully consider the internal/external customers and stakeholders of the organization’s IT portfolio
- Pay very close attention to the interorganizational aspects of the IT portfolio
In the past, the mechanics to develop an ROI were well developed, while a structured approach to evaluating non-financial benefits was ill defined, emphasizing ROI and diminishing the importance of evaluating potential benefits to other stakeholders. PfM requires a new approach to business planning and analysis. A multidimensional analysis of all value factors captures total value; major IT value drivers include the following:
- Customer (user) satisfaction
- Operations (improving in business operations/reliability, enabling growth and transformation)
- Strategic (achieve strategic goals)
- Financial (ROI/IRR/NPV/ROIC – avoiding costs, realizing efficiency gains)
More than half of Global 2000 organizations currently provide inadequate processes for evaluating and determining IT investment priorities, yet the case for investment management through IT PfM is compelling. Managing the value of IT investments is where PfM pays off for the organization. Continued cuts in IT budgets may be inevitable, but effective PfM ensures IT budget decisions will be made with the requisite attention to business value, both short- and long-term. CIOs armed with reliable data and IT PfM analysis processes and tools are able to more quickly make (and better rationalize and support) improved IT investment decisions.
Bottom Line: Failure to understand and gain knowledge of the portfolio management lessons learned by others can result in PfM missteps and failed implementations, leaving many organizations’ fledgling PfM approaches foundering.
Business Impact: Feedback on benefits from actual portfolio management implementations confirms that IT executives should implement IT portfolio management to ensure IT investment decisions are optimally tied to business needs.