IT portfolio management
Encyclopedia
IT portfolio management is the application of systematic management to large classes of items managed by enterprise Information Technology
(IT) capabilities. Examples of IT portfolios would be planned initiatives, projects, and ongoing IT services (such as application support). The promise of IT portfolio management is the quantification of previously informal IT efforts, enabling measurement and objective evaluation of investment scenarios.
IT portfolio management started with a project-centric bias, but is evolving to include steady-state portfolio entries such as infrastructure and application maintenance. IT budgets tend not to track these efforts at a sufficient level of granularity for effective financial tracking.
The concept is analogous to financial portfolio management
, but there are significant differences. Financial portfolio assets typically have consistent measurement information (enabling accurate and objective comparisons), and this is at the base of the concept’s usefulness in application to IT. However, achieving such universality of measurement is going to take considerable effort in the IT industry. (See Val IT
.) IT investments are not liquid, like stocks and bonds (although investment portfolios may also include illiquid assets), and are measured using both financial and non-financial yardsticks (for example, a balanced scorecard
approach); a purely financial view is not sufficient. Finally, assets in an IT portfolio have a functional relationship to the organization, such as an inventory management system for logistics or a human resources system for tracking employees' time. This is analogous to a vertically integrated
company which may own an oil field, a refinery, and retail gas stations.
IT Portfolio management is distinct from IT financial management in that it has an explicitly directive, strategic goal in determining what to continue investing in versus what to divest from.
At its most mature, IT Portfolio management is accomplished through the creation of Three portfolios:
Information Technology portfolio management as a systematic discipline is more applicable to larger IT organizations; in smaller organizations its concerns might be generalized into IT planning and governance as a whole.
Other implementation methods include (1) risk profile analysis (figure out what needs to be measured and what risks are associated with it), (2) Decide on the Diversification of projects, infrastructure and technologies (it is an important tool that IT portfolio management provides to judge the level of investments on the basis of how investments should be made in various elements of the portfolio), (3) Continuous Alignment with business goals (highest levels of organizations should have a buy-in in the portfolio) and (4) Continuous Improvement (lessons learned and investment adjustments).
Maizlash and Handler (2007) provide a proven step-by-step methodology for applying IT portfolio management that has eight stages. In today's fast-paced world, waterfall approaches to delivering anything are proving to be less and less effective. Nonetheless, the eight stages are:
There is no single best way to implement IT portfolio approach and therefore variety of approaches can applied. Obviously the methods are not set in stone and will need altering depending upon the individual circumstances of different organizations.
s also emphasize the use of vision and strategy in any investment decision, oversight and control of operation budgets is not the goal. IT portfolio management allows organizations to adjust the investments based upon the feedback mechanism built into the IT portfolio management.
in 1973: “investments in developing computer applications can be thought of as a portfolio of computer applications.”
Further mention is found in Gibson and Nolan's Managing the Four Stages of EDP Growth in 1973. Gibson and Nolan proposed that IT advances in observable stages driven by four "growth processes" of which the Applications Portfolio was key. Their concepts were operationalized at Nolan, Norton & Co. with measures of application coverage of business functions, applications functional and technical qualities, applications age and spending.
McFarlan proposed a different portfolio management approach to IT assets and investments. Further contributions have been made by Weill and Broadbent, Aitken, Kaplan, and Benson, Bugnitz, and Walton. The ITIL
version 2 Business Perspective and Application Management volumes and the ITIL v3 Service Strategy volume also cover it in depth.
Various vendors have offerings explicitly branded as "IT Portfolio Management" solutions.
ISACA's Val IT
framework is perhaps the first attempt at standardization of IT portfolio management principles.
In peer-reviewed research, Christopher Verhoef has found that IT portfolios statistically behave more akin to biological populations than financial portfolios.
Verhoef was general chair of the first convening of the new IEEE conference, "IEEE Equity," March 2007, which focuses on "quantitative methods for measuring, predicting, and understanding the relationship between IT and value."http://www.cs.vu.nl/equity2007/index.php?id=1
and Enterprise Architecture
, and might even be seen as a bridge between the two. ITIL v3 calls for Service Portfolio Management which appears to be functionally equivalent.
Information technology
Information technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications...
(IT) capabilities. Examples of IT portfolios would be planned initiatives, projects, and ongoing IT services (such as application support). The promise of IT portfolio management is the quantification of previously informal IT efforts, enabling measurement and objective evaluation of investment scenarios.
Overview
Debates exist on the best way to measure value of IT investment. As pointed out by Jeffery and Leliveld (2004), companies have spent billions of dollars on IT investments and yet the headlines of mis-spent money are not uncommon. Nicholas Carr (2003) has caused significant controversy in IT industry and academia by positioning IT as an expense similar to utilities such as electricity.IT portfolio management started with a project-centric bias, but is evolving to include steady-state portfolio entries such as infrastructure and application maintenance. IT budgets tend not to track these efforts at a sufficient level of granularity for effective financial tracking.
The concept is analogous to financial portfolio management
Investment management
Investment management is the professional management of various securities and assets in order to meet specified investment goals for the benefit of the investors...
, but there are significant differences. Financial portfolio assets typically have consistent measurement information (enabling accurate and objective comparisons), and this is at the base of the concept’s usefulness in application to IT. However, achieving such universality of measurement is going to take considerable effort in the IT industry. (See Val IT
Val IT
Val IT is a governance framework that can be used to create business value from IT investments. It consists of a set of guiding principles and a number of processes and best practices that are further defined as a set of key management practices to support and help executive management and boards...
.) IT investments are not liquid, like stocks and bonds (although investment portfolios may also include illiquid assets), and are measured using both financial and non-financial yardsticks (for example, a balanced scorecard
Balanced scorecard
The Balanced Scorecard is a strategic performance management tool - a semi-standard structured report, supported by proven design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the...
approach); a purely financial view is not sufficient. Finally, assets in an IT portfolio have a functional relationship to the organization, such as an inventory management system for logistics or a human resources system for tracking employees' time. This is analogous to a vertically integrated
Vertical integration
In microeconomics and management, the term vertical integration describes a style of management control. Vertically integrated companies in a supply chain are united through a common owner. Usually each member of the supply chain produces a different product or service, and the products combine to...
company which may own an oil field, a refinery, and retail gas stations.
IT Portfolio management is distinct from IT financial management in that it has an explicitly directive, strategic goal in determining what to continue investing in versus what to divest from.
At its most mature, IT Portfolio management is accomplished through the creation of Three portfolios:
- Application PortfolioApplication Portfolio ManagementIT Application Portfolio Management is a practice that has emerged in mid to large size Information Technology organizations since the mid 1990s...
- Management of this portfolio focuses on comparing spending on established systems based upon their relative value to the organization. The comparison can be based upon the level of contribution in terms of IT investment’s profitability. Additionally, this comparison can also be based upon the non-tangible factors such as organizations’ level of experience with a certain technology, users’ familiarity with the applications and infrastructure, and external forces such as emergence of new technologies and obsolescence of old ones. - Infrastructure Portfolio - This For an organization's information technology, infrastructure management (IM) is the management of essential operation components, such as policies, processes, equipment, data, human resources, and external contacts, for overall effectiveness. Infrastructure management is sometimes divided into categories of systems management, network management, and storage management. The ability of organizations to exploit IT infrastructure, operations and management sourcing/service solutions not only depends on the availability, cost and effectiveness of applications and services, but also with coming to terms with solution providers, and managing the entire sourcing process. In the rush to reduce costs, increase IT quality and increase competitiveness by way of selective IT sourcing and services, many organizations do not consider the management side of the equation. The predictable result of this neglect is overpayment, cost overruns, unmet expectations and outright failure.
- Project PortfolioProject Portfolio ManagementProject portfolio management is a term used by project managers and project management organizations, , to describe methods for analyzing and collectively managing a group of current or proposed projects based on numerous key characteristics...
- This type of portfolio management specially address the issues with spending on the development of innovative capabilities in terms of potential ROI and reducing investment overlaps in situations where reorganization or acquisition occurs. The management issues with the second type of portfolio management can be judged in terms of data cleanliness, maintenance savings, suitability of resulting solution and the relative value of new investments to replace these projects.
Information Technology portfolio management as a systematic discipline is more applicable to larger IT organizations; in smaller organizations its concerns might be generalized into IT planning and governance as a whole.
Benefits of using IT portfolio management
Jeffery and Leliveld (2004) have listed several benefits of applying IT portfolio management approach for IT investments. They argue that agility of portfolio management is its biggest advantage over investment approaches and methods. Other benefits include central oversight of budget, risk management, strategic alignment of IT investments, demand and investment management along with standardization of investment procedure, rules and plans.Implementing IT portfolio management
Jeffery and Leliveld (2004) have pointed out a number of hurdles and success factors that CIOs might face while attempting to implement IT portfolio management approach. To overcome these hurdles, simple methods such as proposed by Pisello (2001) can be used.
-Plan-
- -
- -
build retire
- -
- -
Maintain
Other implementation methods include (1) risk profile analysis (figure out what needs to be measured and what risks are associated with it), (2) Decide on the Diversification of projects, infrastructure and technologies (it is an important tool that IT portfolio management provides to judge the level of investments on the basis of how investments should be made in various elements of the portfolio), (3) Continuous Alignment with business goals (highest levels of organizations should have a buy-in in the portfolio) and (4) Continuous Improvement (lessons learned and investment adjustments).
Maizlash and Handler (2007) provide a proven step-by-step methodology for applying IT portfolio management that has eight stages. In today's fast-paced world, waterfall approaches to delivering anything are proving to be less and less effective. Nonetheless, the eight stages are:
- Developing an IT portfolio management game plan
- Planning the IT portfolio
- Creating the IT portfolio
- Assessing the IT portfolio
- Balancing the IT portfolio
- Communicating the IT portfolio
- Developing and evolving IT portfolio governance and organization
- Assessing IT portfolio management process execution
There is no single best way to implement IT portfolio approach and therefore variety of approaches can applied. Obviously the methods are not set in stone and will need altering depending upon the individual circumstances of different organizations.
IT portfolio management vs. balanced scorecard
The biggest advantage of IT portfolio management is the agility of the investment adjustments. While balanced scorecardBalanced scorecard
The Balanced Scorecard is a strategic performance management tool - a semi-standard structured report, supported by proven design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the...
s also emphasize the use of vision and strategy in any investment decision, oversight and control of operation budgets is not the goal. IT portfolio management allows organizations to adjust the investments based upon the feedback mechanism built into the IT portfolio management.
History
The first mention of the portfolio concept as related to IT was from Richard NolanRichard Nolan
Richard Michael Nolan is running for United States Congress in the 8th district of Minnesota . He was a Democratic-Farmer-Labor Party U.S. Representative from Minnesota's 6th congressional district in the 94th, 95th, and 96th congresses,...
in 1973: “investments in developing computer applications can be thought of as a portfolio of computer applications.”
Further mention is found in Gibson and Nolan's Managing the Four Stages of EDP Growth in 1973. Gibson and Nolan proposed that IT advances in observable stages driven by four "growth processes" of which the Applications Portfolio was key. Their concepts were operationalized at Nolan, Norton & Co. with measures of application coverage of business functions, applications functional and technical qualities, applications age and spending.
McFarlan proposed a different portfolio management approach to IT assets and investments. Further contributions have been made by Weill and Broadbent, Aitken, Kaplan, and Benson, Bugnitz, and Walton. The ITIL
Itil
Itil may mean:*Atil or Itil, the ancient capital of Khazaria*Itil , also Idel, Atil, Atal, the ancient and modern Turkic name of the river Volga.ITIL can stand for:*Information Technology Infrastructure Library...
version 2 Business Perspective and Application Management volumes and the ITIL v3 Service Strategy volume also cover it in depth.
Various vendors have offerings explicitly branded as "IT Portfolio Management" solutions.
ISACA's Val IT
Val IT
Val IT is a governance framework that can be used to create business value from IT investments. It consists of a set of guiding principles and a number of processes and best practices that are further defined as a set of key management practices to support and help executive management and boards...
framework is perhaps the first attempt at standardization of IT portfolio management principles.
In peer-reviewed research, Christopher Verhoef has found that IT portfolios statistically behave more akin to biological populations than financial portfolios.
Verhoef was general chair of the first convening of the new IEEE conference, "IEEE Equity," March 2007, which focuses on "quantitative methods for measuring, predicting, and understanding the relationship between IT and value."http://www.cs.vu.nl/equity2007/index.php?id=1
McFarlan's IT portfolio matrix
High
^
|---------------------------------------------------------------|
|strategic | Turnaround |
Impact |---------------------------------------------------------------|
of IS/IT |Critical to achieving |May be critical to |
applications |future business strategy. |achieving future |
on future | (Developer) |business success |
industry | | (Entrepreneur) |
competitiveness |Central Planning | |
| |Leading Edge/Free Market |
|---------------------------------------------------------------|
|Critical to existing business |Valuable but not critical |
|operations |to success |
| (Controller) | (Caretaker) |
| | |
|Monopoly | Scarce Resource |
|_______________________________|_______________________________|
|Factory | Support |
|<---------------------------------------------------------------Low
High
Value to the business of existing applications.
Relationship to other IT disciplines
IT portfolio management is an enabling technique for the objectives of IT Governance. It is related to both IT Service ManagementIT Service Management
IT service management is a discipline for managing information technology systems, philosophically centered on the customer's perspective of IT's contribution to the business. ITSM stands in deliberate contrast to technology-centered approaches to IT management and business interaction...
and Enterprise Architecture
Enterprise architecture
An enterprise architecture is a rigorous description of the structure of an enterprise, which comprises enterprise components , the externally visible properties of those components, and the relationships between them...
, and might even be seen as a bridge between the two. ITIL v3 calls for Service Portfolio Management which appears to be functionally equivalent.
See also
- Application Portfolio ManagementApplication Portfolio ManagementIT Application Portfolio Management is a practice that has emerged in mid to large size Information Technology organizations since the mid 1990s...
- Enterprise ArchitectureEnterprise architectureAn enterprise architecture is a rigorous description of the structure of an enterprise, which comprises enterprise components , the externally visible properties of those components, and the relationships between them...
- Integrated Business PlanningIntegrated business planningIntegrated business planning refers to the technologies, applications and processes of connecting the planning function across the enterprise to improve organizational alignment and financial performance...
- IT Governance
- Project Portfolio ManagementProject Portfolio ManagementProject portfolio management is a term used by project managers and project management organizations, , to describe methods for analyzing and collectively managing a group of current or proposed projects based on numerous key characteristics...
- Val ITVal ITVal IT is a governance framework that can be used to create business value from IT investments. It consists of a set of guiding principles and a number of processes and best practices that are further defined as a set of key management practices to support and help executive management and boards...