IT (Information Technology) Portfolio Management Step-by-Step E-Book

Bryan Maizlish

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 570

Veröffentlichungsjahr: 2010

Beschreibung

Praise for IT Portfolio Management Step-by-Step "Bryan Maizlish and Robert Handler bring their deep experience in IT 'value realization' to one of the most absent of all IT management practices--portfolio management. They capture the essence of universally proven investment practices and apply them to the most difficult of challenges--returning high strategic and dollar payoffs from an enterprise's IT department. The reader will find many new and rewarding insights to making their IT investments finally return market leading results." --John C. Reece, Chairman and CEO, John C. Reece & Associates, LLC Former deputy commissioner for modernization and CIO of the IRS "IT Portfolio Management describes in great detail the critical aspects, know-how, practical examples, key insights, and best practices to improve operational efficiency, corporate agility, and business competitiveness. It eloquently illustrates the methods of building and integrating a portfolio of IT investments to ensure the realization of maximum value and benefit, and to fully leverage the value of all IT assets. Whether you are getting started or building on your initial success in IT portfolio management, this book will provide you information on how to build and implement an effective IT portfolio management strategy." --David Mitchell, President and CEO, webMethods, Inc. "I found IT Portfolio Management very easy to read, and it highlights many of the seminal aspects and best practices from financial portfolio management. It is an important book for executive, business, and IT managers." --Michael J. Montgomery, President, Montgomery & Co. "IT Portfolio Management details a comprehensive framework and process showing how to align business and IT for superior value. Maizlish and Handler have the depth of experience, knowledge, and insight needed to tackle the challenges and opportunities companies face in optimizing their IT investment portfolios. This is an exceptionally important book for executive leadership and IT business managers, especially those wanting to build a process-managed enterprise." --Peter Fingar, Executive Partner Greystone Group, coauthor of The Real-Time Enterprise and Business Process Management (BPM): The Third Wave "A must-read for the non-IT manager who needs to understand the complexity and challenges of managing an IT portfolio. The portfolio management techniques, analysis tools, and planning can be applied to any project or function." --Richard "Max" Maksimoski, Senior Director R&D, The Scotts Company "This book provides an excellent framework and real-world based approach for implementing IT portfolio management. It is a must-read for every CIO staff considering how to strategically and operationally impact their company's bottom line." --Donavan R. Hardenbrook, New Product Development Professional, Intel Corporation

Leseprobe

Table of Contents

Cover

Title

Copyright

Acknowledgments

Foreword

Overview of the Book

Introduction

Chapter 1: IT Portfolio Management: An Overview

CHA CHA CHANGES IN THE CURRENT ENVIRONMENT

FOCUS ON IT INVESTMENTS

FORMING, NORMING, STORMING: THE IT LIFE CYCLE

DOES IT

REALLY

MATTER? THE IT PRODUCTIVITY PARADOX

IT PORTFOLIO MANAGEMENT 101

COMPARISON OF IT PORTFOLIO MANAGEMENT AND FINANCIAL PORTFOLIO MANAGEMENT

VALUE AND RISKS

CONCLUSION

NOTES

APPENDIX 1A: SELECTED FIRM-LEVEL STUDIES OF IT RETURNS

Chapter 2: Planning for IT Portfolio Management: Ready, Aim, THEN Fire

INTRODUCTION

BASELINE ASSESSMENTS

ORGANIZATION READINESS

IT PORTFOLIO MANAGEMENT MATURITY

IT PORTFOLIO MANAGEMENT CAPABILITY ASSESSMENT

STAKEHOLDER ANALYSIS

REFINING IT PORTFOLIO OBJECTIVES

PORTFOLIO METRICS

CHARTERING THE EFFORT

TASK PLANNING

COMMUNICATION PLANNING

IT PORTFOLIO MANAGEMENT SOFTWARE SELECTION

CONCLUSION

NOTE

APPENDIX 2A: IT PORTFOLIO MANAGEMENT MATURITY LEVELS

Chapter 3: People and Governance: The Most Important Success Factors of IT Portfolio Management

INTRODUCTION

A DEMANDING ENVIRONMENT

THE NEW FOCUS FOR IT: BUSINESS

THE BUSINESS—IT ALIGNMENT

IT GOVERNANCE

COBIT: MANAGING THE RISK AND CONTROL OF IT

GETTING STARTED

NOTES

APPENDIX 3A: SARBANES-OXLEY COMPLIANCE ROAD MAP

APPENDIX 3B: TOP ISSUES FACED BY MANAGEMENT

APPENDIX 3C: TOP ISSUES MAPPED TO KEY INDIVIDUALS AND GOVERNANCE BODIES

Chapter 4: IT Portfolios and Their Content in Context

INTRODUCTION

IT DISCOVERY PORTFOLIO

IT PROJECT PORTFOLIO

IT ASSET PORTFOLIO

CONCLUSION

NOTES

APPENDIX 4A: TECHNOLOGY READINESS LEVELS: HARDWARE AND SOFTWARE

Chapter 5: Building the IT Portfolio

INTRODUCTION

STAGE 1: GAME PLAN

STAGE 2: PLANNING

STAGE 3: CREATING

STAGE 4: ASSESSING

STAGE 5: BALANCING

STAGE 6: COMMUNICATING

STAGE 7: GOVERNANCE AND ORGANIZATION

STAGE 8: ASSESSING EXECUTION

CONCLUSION

NOTES

APPENDIX 5A: VALUE CATEGORIES AND VALUE FACTORS

APPENDIX 5B: RISK CATEGORIES AND RISK FACTORS

APPENDIX 5C: READINESS ASSESSMENT: BUSINESS, INTERNAL, AND OPERATIONAL DIAGNOSTICS

Chapter 6: The IT Portfolio Management Market and Industry Provider Assessment Methodology

INTRODUCTION

IT PORTFOLIO SOFTWARE MARKET

IT PORTFOLIO SOFTWARE SELECTION PROCESS

INDUSTRY PROVIDER ASSESSMENT METHODOLOGY

CONCLUSION

APPENDIX 6A: ADVANCED IT PORTFOLIO SOFTWARE PROVIDER EVALUATION CRITERIA

Chapter 7: Final Thoughts

THE FUTURE VISION

NOTES

Case Studies

Cisco Systems, Inc.

In-Q-Tel

Xcel Energy

OLD INDUSTRY, NEW APPROACH

ORGANIZING FOR CHANGE

INVOLVING THE BUSINESS IN IT

TWO MAJOR INITIATIVES TO TRANSFORM IT: MANAGED PORTFOLIO AND MANAGED DEMAND

METHODOLOGY AND PEOPLE FIRST

NEW END-TO-END PROCESS

GOVERNING THE PROCESS

IDEA AND PLANNING STAGES

BUSINESS CASE STAGE

CALCULATING CANDIDATE PROJECT SCORES

PROJECT VALUATION SCORECARD

PMO PROJECT EXECUTION STAGE

POST-IMPLEMENTATION REVIEW

SINGLE SYSTEM OF RECORD

MANAGING DEMAND ON IT

REALIZING THE BENEFITS OF PORTFOLIO MANAGEMENT

REFINING PORTFOLIO MANAGEMENT

LESSONS LEARNED

DELIVERING RESULTS

Sarbanes-Oxley

Index

End User License Agreement

List of Illustrations

Chapter 1: IT Portfolio Management: An Overview

EXHIBIT 1.1 THREE PHASES OF IT LIFE CYCLE

EXHIBIT 1.2 ANALYSIS OF IT INVESTMENTS

EXHIBIT 1.3 IT PORTFOLIO MANAGEMENT

EXHIBIT 1.4 IT PORTFOLIO MANAGEMENT PROCESSES

EXHIBIT 1.5 SAMPLE PROBABILITY DISTRIBUTION

EXHIBIT 1.6 GAO IT INVESTMENT MANAGEMENT PROCESS

EXHIBIT 1.7 SCENARIO PLANNING EXAMPLE

EXHIBIT 1.8 SCENARIO PLANNING PROBABILITIES

Chapter 2: Planning for IT Portfolio Management: Ready, Aim, THEN Fire

EXHIBIT 2.1 ORGANIZATION READINESS DIMENSIONS

EXHIBIT 2.2 OBSTACLES TO IT PERFORMANCE

EXHIBIT 2.3 IT PORTFOLIO MANAGEMENT MATURITY MODEL

EXHIBIT 2.4 STAKEHOLDER ANALYSIS ATTRIBUTES

EXHIBIT 2.5 SCOPE OF IT PORTFOLIO MANAGEMENT

EXHIBIT 2.6 VALUE COMPLEXITY TRADE-OFF

EXHIBIT 2.7 COMMUNICATION PLANNING

Chapter 3: People and Governance: The Most Important Success Factors of IT Portfolio Management

EXHIBIT 3.1 CHALLENGES OF IT ORGANIZATIONAL MODELS

EXHIBIT 3.2 BUSINESS, INFORMATION, AND IT POLICY

EXHIBIT 3.3 IT STRATEGY AND EXECUTIVE STEERING COMMITTEES

EXHIBIT 3.4 CENTRALIZATION VERSUS DECENTRALIZATION

EXHIBIT 3.5 COBIT—MANAGING THE RISK AND CONTROL OF IT

Chapter 4: IT Portfolios and Their Content in Context

EXHIBIT 4.1 STAGES AND GATES IN THE PROJECT PHASES

EXHIBIT 4.2 IT LIFE CYCLE

EXHIBIT 4.3 SIMILARITIES AND DIFFERENCES BETWEEN THE IT DISCOVERY AND IT PROJECT PHASES

EXHIBIT 4.4 INTEL CORPORATION’S EBUSINESS VALUE DIAL

EXHIBIT 4.5 INVESTMENT REVIEW SCORECARD

EXHIBIT 4.6 MULTIDIMENSIONAL CRITERIA

EXHIBIT 4.7 BUBBLE CHARTS FOR ACCOUNTS RECEIVABLE EXAMPLE

EXHIBIT 4.8 SCENARIO PLANNING AND WHAT-IF ANALYSIS

EXHIBIT 4.9 SELECTION DASHBOARD

EXHIBIT 4.10 XCEL ENERGY TECH INNOVATION SCORING CRITERIA

EXHIBIT 4.11 PROJECT INITIATION FORM

EXHIBIT 4.12 HIGH-LEVEL EXAMPLE OF CRITERIA AND VALUES ASSOCIATED WITH EACH CRITERIA

EXHIBIT 4.13 XCEL ENERGY BUSINESS CASE SUITE OUTLINE

EXHIBIT 4.14 PROJECT AND PROGRAM STATUS SNAPSHOTS

EXHIBIT 4.15 TERADYNE’S PHASE-GATED PROJECT PROCESS

EXHIBIT 4.16 IT ASSET PORTFOLIO

EXHIBIT 4.17 HARVESTING UNDERUTILIZED FIXED ASSETS

EXHIBIT 4.18 HIGH-LEVEL INFORMATION FLOW DIAGRAM

EXHIBIT 4.19 APPLICATION DEFINITION AND APPLICATION ELEMENTS

EXHIBIT 4.20 APPLICATION VALUE, BENEFITS, AND COSTS

EXHIBIT 4.21 SAMPLE ENTERPRISE FRAMEWORK

EXHIBIT 4.22 VIEW OF TECHNICAL QUALITY AND BUSINESS VALUE FOR APPLICATIONS

EXHIBIT 4.23 SAMPLE ATTRIBUTES FOR APPLICATIONS

Chapter 5: Building the IT Portfolio

EXHIBIT 5.1 AREAS THAT HAVE DERAILED PORTFOLIO MANAGEMENT EFFORTS

EXHIBIT 5.2 DIVERGENCE AND CONVERGENCE REGARDING VALUE DRIVER PRIORITIES

EXHIBIT 5.3 RISK AND IT PORTFOLIO MANAGEMENT

EXHIBIT 5.4 BUSINESS ALIGNMENT SCORECARD

EXHIBIT 5.5 EIGHT STAGES OF IT PORTFOLIO BUILDING

EXHIBIT 5.6 DETAILED TASKS IN DEVELOPING THE GAME PLAN

EXHIBIT 5.7 STAKEHOLDER ASSESSMENT

EXHIBIT 5.8 READINESS ASSESSMENT

EXHIBIT 5.9 GROUP CREDIBILITY AND DEPENDENCY MATRIX

EXHIBIT 5.10 IT PORTFOLIO MANAGEMENT MATURITY LEVELS

EXHIBIT 5.11 SAMPLE CRITERIA USED TO SCORE OBJECTIVES

EXHIBIT 5.12 DEFINING OBJECTIVES

EXHIBIT 5.13 INVESTMENT STRATEGIC MAP

EXHIBIT 5.14 BUILDING AN EFFECTIVE MEASUREMENT PROGRAM

EXHIBIT 5.15 EXAMPLE OF A CRITICAL SUCCESS FACTOR, KEY PERFORMANCE INDICATORS, AND MEASUREMENT VALIDATION

EXHIBIT 5.16 PLANNING STAGE TASKS

EXHIBIT 5.17 IT INVESTMENT PORTFOLIO CLASSIFICATIONS

EXHIBIT 5.18 DESCRIPTION OF IT INVESTMENT CLASSIFICATIONS

EXHIBIT 5.19 TASKS IN THE CREATING STAGE

EXHIBIT 5.20 ILLUSTRATIVE EXAMPLE OF RISK SCORING METHOD

EXHIBIT 5.21 NUMERICAL EXAMPLE OF RISK SCORING METHOD

EXHIBIT 5.22 MINIMUM, ACTUAL, AND MAXIMUM NUMBER OF RISK INVESTMENTS

EXHIBIT 5.23 SAMPLE SCORING RANGES FOR VALUE FACTORS

EXHIBIT 5.24 SAMPLE OF BUSINESS IT MEASUREMENTS

EXHIBIT 5.25 DEFINITIONS OF ADDITIONAL MEASUREMENT METHODS

EXHIBIT 5.26 MEASUREMENT METHODS AND THE IT PORTFOLIO

EXHIBIT 5.27 THREE DIFFERENT (BUT RELATED) VIEWS OF THE IT PORTFOLIO

EXHIBIT 5.28 FINANCIAL VIEWS

EXHIBIT 5.29 ASSESSING STAGE TASKS

EXHIBIT 5.30 IT PORTFOLIO SCORECARD

EXHIBIT 5.31 ADVANTAGES AND DISADVANTAGES OF SCORING METHODS

EXHIBIT 5.32 COMMONLY APPLIED FINANCIAL MODELS

EXHIBIT 5.33 ADVANTAGES AND DISADVANTAGES OF FINANCIAL MODELS

EXHIBIT 5.34 ADVANCED MODELING AND SIMULATION APPROACHES

EXHIBIT 5.35 ADVANTAGES AND DISADVANTAGES OF MODELING AND SIMULATION APPROACHES

EXHIBIT 5.36 BALANCED SCORECARD FOR IT

EXHIBIT 5.37 BALANCING STAGE TASKS

EXHIBIT 5.38 ADDITIONAL MODELS USED TO ACCESS THE BALANCE OF THE IT PORTFOLIO

EXHIBIT 5.39 APPLICATION PORTFOLIO MIGRATION PATTERNS

EXHIBIT 5.40 BALANCING THE PORTFOLIO: AVAILABILITY

EXHIBIT 5.41 BALANCING THE PORTFOLIO: MULTIPLE AND REDUNDANT APPLICATIONS

EXHIBIT 5.42 BALANCING THE PORTFOLIO: LIFE CYCLES AND LIFE SPANS OF APPLICATIONS

EXHIBIT 5.43 EFFICIENT FRONTIER CURVE

EXHIBIT 5.44 COMMUNICATING STAGE TASKS

EXHIBIT 5.45 UNDERSTANDING KEY PAIN POINTS AMONG STAKEHOLDERS

EXHIBIT 5.46 PERFORMANCE AND REPORTING MECHANISMS

EXHIBIT 5.47 COMMUNICATION PLAN OVERVIEW

EXHIBIT 5.48 GOVERNANCE AND ORGANIZATION OVERVIEW

EXHIBIT 5.49 ASSESSING EXECUTION TASKS

Chapter 6: The IT Portfolio Management Market and Industry Provider Assessment Methodology

EXHIBIT 6.1 IMPORTANT CONSIDERATIONS IN EVALUATING IT PORTFOLIO MANAGEMENT SOFTWARE PROVIDERS

EXHIBIT 6.2 IT PORTFOLIO MANAGEMENT SOFTWARE SELECTION PROCESS

Exhibit 6.3 IT PORTFOLIO MANAGEMENT SOFTWARE SELECTION FRAMEWORK

Cisco Systems, Inc.

EXHIBIT A THE BIG PICTURE

EXHIBIT B OVERALL RELEASE PLANNING FRAMEWORK: INTEGRATING SIX SIGMA (DMAIC) AND PRODUCT LIFE CYCLE

Xcel Energy

*

EXHIBIT C SNAPSHOT OF ECONOMIC VALUE ADDED (EVA) FOR IT PROJECTS AT XCEL ENERGY

EXHIBIT D EVOLVING END-TO-END PROJECT MANAGEMENT AND APPROVAL PROCESS AT XCEL ENERGY WITH GOVERNANCE PROCESS TOUCH POINTS

EXHIBIT E DISPOSITION OF THE FIRST 309 IDEAS ENTERED INTO THE PORTFOLIO MANAGEMENT SYSTEM

EXHIBIT F BUBBLE CHARTS EVALUATING CANDIDATE PROJECTS IN IDEAS AND STAGES

a

EXHIBIT G BCS DASHBOARD

*

EXHIBIT H PORTION OF A DASHBOARD FOR A TYPICAL PROJECT IN XCEL ENERGY PORTFOLIO

EXHIBIT I GRAPH OF PROJECT HEALTH FOR ACTIVE PROJECTS WITHIN A BUSINESS UNIT AND COMPANY-WIDE PROJECT HEALTH ACROSS BUSINESS UNITS

EXHIBIT J PROJECT ISSUES, DEPENDENCIES, PCRS, AND RISKS BY STATUS, WHICH ALSO AFFECT PROJECT HEALTH

EXHIBIT K IT DEMAND AT XCEL ENERGY CATEGORIZED BY REQUESTING UNIT, ONE OF MANY METRICS AVAILABLE IN REAL TIME

EXHIBIT L PORTION OF TYPICAL XCEL ENERGY IT SCORECARD

Sarbanes-Oxley

EXHIBIT M THREE EVENTS TRIGGERING FINANCIAL OPERATIONS AT XCEL ENERGY TO ASSESS OVERSIGHT REQUIREMENTS

Guide

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IT Portfolio Management Step-by-Step

Unlocking the Business Value of Technology

Bryan Maizlish

Robert Handler

(for the META Group, Inc.)

Copyright © 2005 by Bryan Maizlish and META Group, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax [phone], or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax [phone].

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

NOTE TO THE READER: Unless otherwise noted, all of the studies (including percentages shown), and exhibits that appear in the book were either adapted from or are the original material copyrighted to META Group, Inc.

For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800-762-2974, outside the United States at 317-572-3993 or fax [phone].

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books.

For more information about Wiley products, visit our web site at www.wiley.com.

Library of Congress Cataloging-in-Publication Data:

Maizlish, Bryan.

IT portfolio management step-by-step: unlocking the business value of technology / Bryan Maizlish and Robert Handler.

p. cm.

ISBN-13 978-0-471-64984-8 (cloth)

ISBN-10 0-471-64984-8 (cloth)

1. Information technology—Management. 2. Information technology—Cost effectiveness. I. Handler, Robert. II. Title.

HD30.2.M346 2005

004′.068′1—dc22

2004024583

To my wife Robin, the love of my life, my best friend, and the voice of sanity and reason in our household—thank you for your unconditional support and providing the unwavering encouragement, confidence, and inspiration to write this book and achieve my dreams. Thank you to my children Jennifer, Evan, and Emily for bringing joy and happiness into my life, for your incredible patience in this journey, and for your wisdom and counsel in helping me keep things in perspective. And, thank you to my mother, Sondra, for your wonderful advice throughout the journey.

Bryan Maizlish

Words cannot express the appreciation I have for my wife, Jennifer, my son, Charles, my daughter, Alexis, my two golden retrievers, and many others. The effort required to create this book took me away from them more than I had anticipated, yet they stood by me. Thank you also to my parents, David and Claire, who, via nature or nurture, gave me the fortitude to complete this project. It is to all my loved ones who supported me in life that I dedicate this book.

Robert Handler

Acknowledgments

IT Portfolio Management Step-by-Step: Unlocking the Business Value of Technology is the result of 15 years of effort, beginning with our research on financial portfolio management and branching out to information technology (IT) portfolio management. The content in this book was shaped and sculpted based on the stellar research from META Group, Inc., studies from academia, collaboration with IT portfolio management software providers and consultants, and input and feedback from leading practitioners. Thank you for your support, encouragement, and counseling.

There are a few key individuals who deserve special mention. Without the steadfast support of Richard Buchanan, CD Hobbs, Val Sribar, and Dale Kutnick, Gene Hall, Peter Sondergaard, Joe Baylock, and Tom Hayes, and their willingness to allow us utilize resources and key personnel, this book would have not succeeded. Also, a profound thank you to Mike Thomas, Roland Wiltz, and Roger Mann, for providing a foundation that supported our inspiration and creativity. We are deeply grateful to these individuals for allowing us to follow our passion.

We are very appreciative and truly humbled by the generous contributions made by the analysts at META Group. Their tremendous talent, intellect, professionalism, and in-depth research and knowledge provided both content and spirit to our book. Many of these individuals supported our efforts on their own time. Thank you very much for your time, research, and perspectives. Their names, listed below as contributing authors to this book, are as follows (in alphabetical order):

Phil Allega

Wille Appel

Melinda-Carol Ballou

Andreas Bitterer

Scott Bittler

Louis Boyle

Richard Buchanan

Michael Buchheim

Brian Burke

Enrico Camerinelli

David Cearley

Michael Doane

Hobbs

Dale Kutnick

Carole McPherson

George Paras

Al Passori

Jonathan Poe

Wissam Raffoul

Elizabeth Roche

Dr Howard Rubin

Val Sribar

Tim Westbrock

Barry Wilderman

A special thank you to both Michael Booker and Dr. Peter A. Koen. Michael Booker from Stage-Gate, Inc. provided insight and support for the Stage-Gate® processes discussed in our book. Dr. Peter A. Koen, Associate Professor at The Wesley J. Howe School of Technology Management, Stevens Institute of Technology provided valuable input to the discovery phase or “fuzzy front end of innovation” sections of our book.

There were also many important contributions made by other individuals that we would like to thank (in alphabetical order): Shawn Bohner, Brad Boston (Cisco Systems Inc.), Michael Carlson (Xcel Energy), Casey Chaloux, Kim Cook (In-Q-Tel), Dennis Crowley (Cutter Consortium), Martin Curley (Intel Corporation), Matt Dezee (Cisco Systems Inc.), Vince DiGennaro, Don DiNunno, Sabina Gargiulo (Institute for International Research), Ray Gogel (Xcel Energy), Mike Gruia (United Management Technologies), Ian S. Hayes (Clarity Consulting), Brian James (Mercury Interactive), Doug Laney, Rick Laubscher, Kevin Laughlin (Cisco Systems, Inc.), Harry Lee (The Department of Treasury), David Lindheimer, Gilman Louie (In-Q-Tel), Doug Lynn, David Perko (Teradyne Inc.), Dave Peterson (Mercury Interactive), Rachel Quercia (Pacific Edge Software), Sue Reber (ProSight, Inc.), John Reece (John C. Reece & Associates), Marnie Ross, Terry Ross (Pacific Edge Software), Karen Rubenstrunk, Jane Seago (IT Governance Institute), Michael Slovin, Mitch Taylor (Cisco Systems, Inc.), Rick Turoczy (ProSight Inc.), Herb VanHook, Kris van Riper (Corporate Executive Board/CIO Executive Board), Katherine Vogt (Corporate Executive Board/CIO Executive Board), Gayle von Eckartsberg (In-Q-Tel), Dr. Sami Zahran (IBM), and Aaron Zornes.

We would like to thank Suzanne (Meier) Dvorchak for balancing her family life and the editing needs of this book. Her insight, suggestions, and pragmatic approach helped bring many concepts together. Also, special thanks to Barbara Koning, who went into overdrive in providing many of the graphics. Thank you for your personal attention and collaborative support.

We are very appreciative toward Ron Nelson for taking time out of his busy schedule to write the outstanding Foreword to our book.

Our editor, Tim Burgard, and editorial support from Helen Cho and Kim Nir deserve special praise for supporting this book, teaching us the art and science of the English language, and tolerating our often strong opinions. Thank you for seeing the value of IT portfolio management, and for guiding us through the publishing process.

We should note that as this manuscript went to press, META Group had agreed to be acquired by Gartner, Inc. The merger was expected to be completed early in the second quarter of 2005, approximately when IT Portfolio Management was scheduled to be published.

We are also deeply grateful to our families who endured the long hours and collaboration that went into this book and supported us all along the way. To Robin Maizlish and Jennifer Handler, our heartfelt love and gratitude cannot be expressed with words. Through it all, we built a strong and enduring friendship.

Also great thanks to our children who were remarkably understanding of the time and commitment it took to write this book. Thank you Alexis Handler, Charles Handler, Jennifer Maizlish, Evan Maizlish, and Emily Maizlish. You kids rock!

Most of all we’d like to thank you, the reader, for supporting this effort. We have deep respect for you, the change agents, who must do one of the most difficult things there is to do—exercise positive change in the face of often extreme resistance. We did our best to put together something that was useful to the change agents, providing context, a usable approach, and lessons learned, but we know that effecting positive change in any organization is usually no small task. Thank you.

Foreword

In the information age, knowledge provides a competitive edge that no business can ignore. The challenge, however, is that with all of the hype, complexity, and confusion around information technology (not to mention a healthy dose of jargon) it is often difficult to distinguish between good and bad technology investments. That’s problematic, or at least it should be, because information technology is the central nervous system of most organizations, providing the tools to act rapidly to changes in the business environment. If the information technology is optimized, the organization can thrive, even in the most chaotic times. Optimizing information technology investments is not an option—it is a business mandate.

Information technology investments currently account for the majority of capital expenditures within many companies; therefore it must be treated with at least the same due diligence rigor as any other capital investments. A sound business case must exist; it must support the strategy of the organization; and it must support, and in many ways adhere to, new legislation.

We are increasingly expected to provide accurate information to multiple shareholder and stakeholder groups at light speed. But that should not be a justification for throwing caution to the wind and spending whatever it takes to accomplish that goal. Like any other investment, information technology must be actively managed throughout its entire life cycle, ensuring that both its initial and ongoing costs do not exceed the benefits it provides. We cannot afford to treat investments in information technology as unmanaged operating expenses, as they provide far too many opportunities for value creation, cost savings, and relevant, timely, and accurate information that serve as seminal elements of competitive advantage.

IT portfolio management provides a sound and proven business approach to optimizing investments in information technology. The investment portfolio metaphor provides a mechanism to govern investments in information technology that accounts for their value, risks, costs, useful life, and interrelationships. Much the way an investment manager dynamically manages a portfolio of financial investments, business leaders must make intelligent buy, sell, and hold decisions around their investments in information technology to optimize revenue and growth opportunities, improve customer experience, and streamline operations; when done properly, the productivity improvements and cost savings that result will positively impact the bottom line and allow us to fulfill our primary obligation: driving shareholder value. For example, automated transaction processing through online order making and order taking has created opportunities to offer complex services through dynamically packaging new customized offerings, generating additional fees, and better meeting the customer needs of a global audience. The online travel business is a good example of how information technology has served as a powerful enabler, facilitating streamlined fee-for-service and inventory management models, and providing greater access to published air, car, cruise, and hotel fares, and travel packages worldwide for both leisure and business travelers.

With the growing investment in information technology and the profound contribution of information technology within many companies, it is imperative that the interactions between risk, reward, and value for information technology investments are proactively identified, evaluated, prioritized, and managed. IT Portfolio Management makes this case strongly and logically, providing evidence and case studies to support this argument. IT Portfolio Management highlights the impact of adopting this technique, from organizational change to governance impacts down to the bottom line. Many books present approaches to effecting positive business change, but IT Portfolio Management presents the approach and provides the steps required to transform an organization from ad hoc information technology management to information technology optimization, replete with lessons learned. IT Portfolio Management is not a revolutionary approach. It is an evolutionary approach that works. The authors thoughtfully provide tools to measure your organization’s abilities and to help it evolve over time to information technology excellence.

Following the guidance of this book, organizations can evolve into adaptive real-time enterprises that thrive in a world of change. IT Portfolio Management provides an answer to every senior business leader’s questions around the black hole of the IT budget. IT Portfolio Management also provides answers to how IT professionals should breakdown the barriers and effectively communicate with business leaders in their language. Maintaining a strong balance sheet, alignment of assets, occupying and sustaining a leadership position, and achieving profitable and relevant return on investments cannot be separated from sound practices of IT portfolio management, and are the fiduciary responsibilities of leaders in an information technology era.

Ronald L. NelsonPresident and Chief Financial OfficerCendant Corporation

Overview of the Book

Part I: Introduction and Background

The Introduction provides the readers with a brief overview of IT portfolio management and a description of what lies ahead. It sets the stage for readers who are new to IT portfolio management. Experienced readers should skim this section.

Chapter 1, IT Portfolio Management: An Overview, provides the foundation building for the remainder of the book. For readers who are new to IT portfolio management, Chapter 1 provides a good overview with a description of the definitions and characteristics, and a discussion on the value and risk associated with IT investments. For readers who are experienced at IT portfolio management, we recommend skimming through this chapter.

Part II: Foundational Elements

Chapter 2, Planning for IT Portfolio Management: Ready, Aim, THEN Fire, provides a description of some of the assessments and readiness dimensions related to IT portfolio management. Readers who are new to IT portfolio management should carefully read this section. For experienced readers, we suggest, at a minimum, skimming this section. This chapter touches upon many of the organizational relationships that are often missed by even experienced practitioners, so it is definitely worth the time to read this chapter. Chapter 2 also provides important insight with respect to the IT portfolio management maturity model. We recommend that all readers focus on this section of the chapter. Balance and alignment across the elements of the maturity model is critical to optimize one’s performance.

Chapter 3, People and Governance: The Most Important Success Factors of IT Portfolio Management, describes how regulatory changes are affecting management’s approach to monitoring, controlling, and responsible risk-taking. The Sarbanes-Oxley Act and other compliance requirements are driving a focus on governance, and the associated policies and principles. For readers who are new to governance, we suggest reading this chapter. For readers who have efficient and effective governance structures in place, we advise skimming this chapter.

Chapter 4, IT Portfolios and Their Content in Context, describes the linkage between the IT life cycle phases and the three IT portfolios. In addition, detailed information is provided regarding the structure and content of each portfolio. For readers who are new to IT portfolio management, we suggest skimming this chapter and referring back to it on a frequent basis. There are many areas within Chapter 4 that cross over to Chapter 5. For readers who are experienced at IT portfolio management, Chapter 4 provides examples of how other companies approach this subject, and therefore should be read in depth.

Part III: Building: Step-by-Step

Chapter 5, Building the IT Portfolio, discusses in detail the eight key stages in building the IT portfolio. This is the longest chapter, and, for most readers, will represent the most important material in this book. Each stage, and its sub-elements (e.g., tasks, outputs, and skill requirements), are shown along with images to illustrate the steps and processes. While Part I and Part II provide important foundational elements, readers, both novice and experts, are encouraged to focus on the valuable and extensive information provided in this chapter.

Part IV: Implementing, Conclusion, and Detailed Best Practices

Chapter 6, The IT Portfolio Management Market and Industry Provider Assessment Methodology, discusses the current and future state of the IT portfolio management software marketplace, and provides a comprehensive industry provider assessment methodology. Functional capabilities, presence, and performance criteria form many of the critical decision factors companies should consider in evaluating and selecting an IT portfolio management tool. This chapter targets information for readers at all levels.

Chapter 7, Final Thoughts, summarizes many of the important points raised in this book. The future vision of adaptive technologies, the impact of legislation, and other factors are brought forward for consideration. This chapter, although optional, helps to put it all in perspective.

The Appendixes provide detailed case studies from three exemplar companies—Cisco Systems, Inc., In-Q-Tel, and Xcel Energy. Many of the core principles and process are illustrated in these case studies. Readers will find these case studies very illuminating.

Introduction

Information technology (IT) is at a critical juncture in today’s business climate. The pressure of managing and optimizing IT investments across multiple business units/divisions in alignment with key business drivers and their associated risks, cost, value, performance in light of limited resources (people, funding, facilities, etc.) and a demanding legal and regulatory environment is a challenge for all companies. The measurement for return on IT investments has shrunken from yearly to quarterly to monthly. The increasing velocity in the pace of change and innovation is requiring a corresponding increase in the ability to adopt structure, discipline, and rigor in delivering value and meeting customer needs; a Darwinian shakeout is happening in front of our very eyes. Information technology can be either a strategic enabler that adds value, drives growth and transforms a business or a source of distracting noise that results in increased costs just to maintain the status quo. It is up to companies to decide how to manage IT. Unfortunately, most business executives have little regard for IT and minimal visibility into their IT investments. With IT investments ranging from 1.5% to almost 7% of revenues (a few companies spend as high as 20%), it is clear that an approach is needed to ensure these investments meet or exceed expectations. This book prescribes a logical, consistent, common-sense approach to aligning, rationalizing, prioritizing, selecting, optimizing, managing, and monitoring the portfolio of information technology investments for optimal benefit and balance, identifying and eliminating low value-add and redundant investments while maximizing the allocation of resources at acceptable levels of risk. Constraints based on available funding, core capabilities, risk thresholds, labor and material resources, complexity and maturity, time, organizational priorities and requirements, compliance and standards, and value and benefits serve as important factors that must be assessed, prioritized, and balanced in a portfolio of IT investments. While it is not a silver bullet, IT portfolio management is the next best thing—a proven, rational, and practical value-revenue generation and cost reduction approach that works, enabling companies to create and maintain a sharp focus while having visibility and control of their investments across their organizations.

Beginning in the late 1940s through the next few decades, management of IT was simple and straightforward. IT hardware was prohibitively expensive, and applications were costly and custom built to fit a company’s needs. Rogue buying patterns were nonexistent. As the IT market began to mature and as standards and commercial off-the-shelf technologies gained acceptance, the cost of hardware and software dramatically declined, allowing divisions and business units to bypass corporate IT to procure technology independently. Y2K, the birth of the Internet, and the dot.com era helped propel a period of double-digit IT spending, further compounding an off-cycle, often hidden IT spending frenzy. As IT spending took on an increasing percentage of a company’s expenses, many companies began to take inventory of their IT assets and uncovered a large number of duplicative systems and solutions.

When the dot.com implosion occurred and revenue growth slowed, the pipeline of new innovations and product development exposed a large number of issues regarding the poor quality and abundant (and redundant) quantity of IT investments, misalignment with strategy/objectives, and imbalance of aggregated risks. Companies could no longer afford to be kept in the dark with respect to the number of ongoing projects, the resources allocated to these projects, and the inventory and lack of integration and interoperability between existing IT assets. All of these factors were draining valuable resources, resulting in a high degree of company-wide risk. Companies could no longer afford to ignore the interdependencies, intradependencies, support, and constraints that these IT assets individually and collectively had on other assets, thus affecting cost, risk, and value.

The complexity, rapid changes, and volatility in the technology sector have continued to proliferate, making technology investments increasingly risky and uncertain. For example, changes can occur as a result of:

Adjustments to the mix of business/mission needs and product versus service offerings

Industry trends

Economic shifts

Customer and constituent demands

Supplier offerings

New disruptive technologies

Regulatory requirements

Competition and/or business intelligence

A key discriminator for adaptive organizations is moving the bar to the left, sensing these trends and changes earlier in the cycle and responding with near real-time precision. Web services, model and service-oriented architectures, composite applications, offshore IT outsourcing, thin client architectures, on-demand computing, ubiquitous computing with nodes virtually everywhere, and other innovations will continue to fundamentally change the paradigm of IT spending and management, creating unprecedented opportunities for flexibility and agility. In addition, IT management’s role has changed and transformed from code development, primarily for internal purposes, to integration of standards-based, open-source/commercial off-the-shelf technologies targeted to both internal and external users—and many pundits think this is just the tip of the iceberg.

IT management’s role has expanded into the formulation and development of the corporate strategic plan. The chief information officer (CIO) in many companies reports directly to the chief executive officer (CEO), working closely with corporate leadership to establish the governance and charter for IT portfolio management as well as the criteria and target performance associated with measurements and metrics. The job description for IT management now encompasses a combination of leadership, technological know-how, and expertise in business financial processes and strategy. IT management is under tremendous pressure to reduce cycle times, decrease the amount of time to change business processes, and handle a growing multitude of information sources that are generating more information in shorter periods of time. Organizing, managing, and responding in near real time to changing conditions is a core competency required to compete in today’s market.

For decades, researchers have studied the possible correlation between information technology investments and productivity. Although study findings are not always consistent, IT’s growing contribution to a company’s core competencies cannot be debated; nor can the growing reliance of IT on delivering value and quality of service to customers, suppliers, employees, distributors, and partners. Failure to deliver value and quality of service from IT investments or assets can be costly and catastrophic.

IT portfolio management is not an alien term within most companies. But the definitions and practical aspects of IT portfolio management are not obvious or widely accepted. According to a recent study, less than 20% of companies maintain an active IT portfolio management framework.

The goal of an IT portfolio is to deliver measurable business value—tangible and intangible—while aligning and improving the business and IT strategy. Similar to the portfolio management framework utilized in the financial services sector, IT portfolio management is a combination of people, processes, and corresponding information and technology that senses and responds to change by:

Communicating effectively, with appropriate agility to rapidly reprioritize and rebalance investments and assets

Creating and cataloging a detailed, value-based, risk assessment of the inventory of existing assets

Eliminating redundancies while maximizing reuse

Scheduling personnel and other resources optimally

Monitoring and measuring project plans (costs, schedule, scope, timing, yield, risk, benefits, etc.) from development through post-implementation, including disposal

IT portfolio management provides the tools, processes, and disciplines needed to translate information technology into a common taxonomy that both business and IT executives understand. Using business-oriented values of measures, establishing views of interest to specific stakeholders, and measuring and monitoring the health and status of all IT investments through the use of key performance indicators, metrics, balanced scorecards, and service-level agreements reinforces the importance of the communication and collaboration between IT and business. IT portfolio management is conveyed in business terms, and business management is responsible for making IT investment decisions. The critical importance of alignment to corporate strategy and planning, and the sequencing of priorities to migrate from the current as-is state to the future to-be state, is driven primarily by business needs and supported by IT.

IT portfolio management provides the day-to-day management and operations of IT investments, assuring IT investments are performing according to plan, scope creep, redundancies, and risks are identified early, limited resources are providing maximum benefit, and any changes to the IT portfolio as a result of business redirection are efficiently and effectively executed. In addition, IT portfolio management tracks and reports on IT forecasts, road maps, and trends, providing business, technology, integration, and solution views in support of the guidance and direction of the future to-be business strategy.

The communication and collaboration between IT and business are the most critical aspects of IT portfolio management. Trying to create an active IT portfolio management framework will not work without clearly defined and measurable business and strategic objectives and accountability that are embraced by employees, partners, suppliers, customers, and distributors. Culture, organizational barriers, isolated (stovepipe) processes and rogue systems, undocumented and convoluted (spaghetti) architectures, lack of governance and control points, and metrics-based decision making based on yesterday’s behaviors and parameters must be resolved to assure the success of IT portfolio management.

This book provides a pragmatic, step-by-step road map, describing IT portfolio management and its major elements. Chapter 1 provides an overview of IT portfolio management. Chapter 2 describes the planning aspects of IT portfolio management. It explains the IT portfolio management maturity model and the key people, process, and technology aspects at each of five levels within the model. Chapter 3 describes the IT governance aspects of the IT portfolio. It discusses the relationship between IT and corporate governance, and the impact of legislation and compliance rules, such as the Sarbanes-Oxley Act, on the IT portfolio. Chapter 4 covers the IT life cycle and IT subportfolios. Chapter 5 provides step-by-step aspects of building the IT portfolio. Chapter 6 describes the request for information and the request for proposal parameters that companies should consider when evaluating and assessing IT portfolio management software providers. Chapter 7 covers the way forward, discussing the impact that adaptability and new technologies have on IT portfolio management. The book concludes with detailed case studies of Cisco Systems, In-Q-Tel, and Xcel Energy, which are exemplar companies that actively practice IT portfolio management.

For leading companies, the IT portfolio is measurable, manageable, traceable, and constantly being monitored and improved, enabling IT investment decisions of buy, hold, sell, migrate, reengineer, or replace projects and/or assets with near real-time quantitative and qualitative impact assessment. Reliable information and data regarding the current architecture enhances a company’s ability to monitor and measure the existing portfolio of assets, identifying gaps and shortfalls, leading to the possibility of retiring investments, creating new projects, or generating the need for discovery and innovations to solve complex problems not addressable by current solutions. Duplicative, superfluous investments that are not in line with business objectives are identified early in the process and terminated. Pioneering companies that actively practice IT portfolio management realize its value is more than simply maximizing tangible financial payback, achieving the largest net present value, or attaining the highest rate of return. They understand that value is also derived from investments that optimize and provide soft benefits such as legal and/or regulatory compliance and intangible, nonfinancial benefits such as higher customer satisfaction.

One size or one road map does not fit all companies for IT portfolio management, but the essential ingredients to move forward for new adopters, novices, and experts are encapsulated in this book. If you are new to IT portfolio management, we provide a starting point, defining the scope, objectives, governance, key decision criteria, and associated processes. You are encouraged to identify IT investment opportunities that offer high impact and low levels of complexity (e.g., IT project portfolio and discretionary investments), analyze these potential investments against business alignment, risks, benefits, and costs, and make a selection. Taking small, balanced, and aligned steps and incorporating lessons learned are important elements for early success. For those who are experienced in IT portfolio management, this book offers insight into leading practices of optimizing the entire portfolio, case studies, important legislation and compliance requirements, and the suggested parameters for evaluating IT portfolio management software companies.

Companies will continue to harness IT to automate new forms of collaboration, innovation, analytics, operational excellence, resource sharing, and sourcing. As IT becomes more commoditized, or as Nicholas Carr’s Harvard Business Review article “IT Doesn’t Matter” states, “What makes a resource truly strategic . . . is not ubiguity but scarcity,”1 competitive advantage will increasingly be defined by companies that leverage IT in the areas of adaptability, productivity and response times, inventory and cost per transaction, visibility and transparency across processes, and metrics to monitor and control risks and uncertainty. IT portfolio management is the nucleus to assure that IT is aligned with business, avoiding the costly problem of overspending/unnecessary spending, and bucketing investments according to categories that help run the business, grow the business, and transform the business. IT portfolio management provides the discipline of balancing risk against expected returns, evaluating the performance and utilization of existing systems, analyzing and assessing alternatives and trade-offs, and removing waste resulting in significant efficiencies and cost savings. The analysis and results of IT portfolio management will increasingly play an important role in shaping, molding, and defining the corporate and strategic plan. IT and business, once thought of as separate and distinct, are morphing together. IT portfolio management is the change agent that makes this happen with the most efficiency and best results.

NOTE

1.

Nicholas G. Carr, “It Doesn’t Matter,”

Harvard Business Review

Vol. 81, No. 5, May 2003.

Chapter 1IT Portfolio Management: An Overview

CHA CHA CHANGES IN THE CURRENT ENVIRONMENT

The unabated growth in information technology (IT) spending, a primary means of economic expansion before 2000 due to large-scale enterprise resource planning (ERP) implementations, Y2K, and the hypergrowth attributed to dot.com and e-business, is, for the time being, over. In today’s turbulent environment, companies face new hurdles from:

Greater uncertainty

Increased commoditization

Nontraditional entrants with competitive offerings

Shorter half-life of information (moving strategic enablers to commodity)

Tighter spending

New technologies

Changing customer demands and higher levels of personalized preferences

Multiple pricing, service, and utility models

Government regulations, legal compliance, and safety standards

Increased transparency of information due to the blurring between customers, competitors, and suppliers

While many of these challenges are externally driven, the internal challenges faced by many companies include:

Clearly defined and clearly communicated business and strategic objectives, and consensus building around these objectives

Complexity associated with introducing and infusing change and innovation

Identifying and managing investments across multiple divisions and business units

Product versus service focus

Value chain partners

Sourcing relationships

Cost reductions

Responsiveness improvements

Efficiency enhancements

Although change will continue to accelerate and have more impact, many companies continue to either reduce or maintain current levels of IT spending. CIOs and other IT management leaders are now being called upon to justify the business value of IT. Critical capabilities to supporting the business value of IT include:

Prioritization and alignment with the corporate vision

Balanced investments across business units

Pragmatic cost and risk-control mechanisms

Rational decision-making processes

Flexibility to reassess and rebalance priorities in the face of a fluid environment

Adherence to mandated compliance and regulatory requirements

Achieving growth and business value in today’s challenging economy has driven many companies to focus on their core competencies: the unique and differentiated knowledge contained within their processes, technologies, relationships and extended enterprises, skills, and culture that provide a leveragable competitive advantage. Focusing on core competencies also means developing a closer alignment between business and IT, as IT represents a sizable percentage of the budget spending for companies and is quickly developing into a valuable strategic asset. In fact, according to recent research, IT spending as a percentage of gross revenues is currently 1.5% to 7.0% and represents greater than 70% of capital spending for most companies.

FOCUS ON IT INVESTMENTS

IT can have a significant impact on the quality of services and solutions and the performance of a company. Efficiently and effectively managed IT investments that meet business and mission needs can create new value-revenue generation, build important competitive advantages and barriers to entry, improve productivity and performance, and decrease costs. Similarly, poorly aligned and unmanaged IT investments can sink a company.

IT investments represent a profound hole within companies. There are no other investments within a company that occupy such a large and growing expenditure yet lack disciplined management, processes, and performance measurements. However, a majority of companies are aggressively scrutinizing the amount of investment allocated to IT in an effort to cut costs, achieve economies of scale, and drive shareholder value to get more and do more for less. The primary focus on IT investments is on short-term projects and priorities with near-term benefits, delaying and in many cases eliminating long-term strategic investments.

Concurrent to cutbacks in IT spending and a short-term focus, management within companies is demanding an increase in IT productivity, expanding IT’s role from internally focused to customer facing and making IT more relevant to the business strategy as resources are scaled back. Customers are demanding more rapid, real-time, customized, total solutions, while competitors are forcing companies to frequently innovate to maintain their market position. Additionally, regulators are requiring new levels of accountability and traceability of corporate behavior (e.g., the Sarbanes-Oxley Act), prompting increasing levels of compliance. The information systems department is not immune to compliance requirements mandating microscopic examinations of areas such as careless project overruns.

Besides deploying Six Sigma practices and cutting costs by freezing projects, laying off employees and contractors, or renegotiating supplier contracts, many companies are utilizing supply-side self-funding IT activities to get through turbulent times, including:

Simplifying, migrating, retiring, and/or consolidating legacy systems to decrease operations and maintenance costs and increase flexibility and agility

Standardizing, reengineering, and utilizing commercial off-the-shelf technologies and open standards for new product development to speed time to market and avoid the expensive use of proprietary technologies

Externalizing processes through outsourcing and establishing value-network partner ecosystems and shared services, resulting in lower costs and focus on core competencies

IT portfolio management is a tool that supports companies during times of both robust growth and economic downturn. IT portfolio management supports disciplined improvement and thrives on consistency, repeatability, and accountability. However, a key challenge for companies during periods of boom or bust is aligning to the corporate strategic intent and developing a framework for measuring, balancing, prioritizing, selecting, and flexibly changing the composition of IT investments and assets. Many companies are hemorrhaging in IT spending due to:

A prevalence of pet projects

A reluctance to kill projects and/or retire assets

Too many active projects and a huge backlog of projects

A myopic focus on exotic and cool technologies

A lack of a detailed cataloged, organized, and aggregated view of critical versus immaterial assets

Inconsistent and incomplete criteria to assess IT investments

Underestimation of the total cost of ownership

Inadequate governance

Ad hoc program management processes

This situation is reflected in the following survey results that highlight the shortfalls of the majority of companies in attaining optimal value at acceptable risk levels for their IT investments:

84% of companies either do not do business cases for their IT projects or do them on a select few key projects.

83% of companies are unable to adjust and align their budgets with business needs more than once or twice a year.

67% of IT organizations are not market ready. Benchmarking is done less frequently than once a year.

89% of companies are flying blind, with virtually no metrics in place except for finance.

57% of companies perceive they are balancing the pressures of cost cutting and IT effectiveness.

Most companies maintain a list of more IT projects than their budgets can support. Ironically, many business and IT managers are unaware of:

The types of ideas and concepts being worked on within research and development

How many IT projects are in the development cycle and their alignment with the future strategic direction

The amount of resources allocated to, or the risks associated with, each IT investment

The reason why IT investments were initiated or the criteria used to approve IT investments

In addition, information regarding the size and magnitude of the operations and maintenance budget as a percentage of IT spending, and how this funding is allocated among new systems versus legacy systems, is typically not readily available. Hiding IT costs associated with pet projects, political power plays that override strategic objectives, and implementation and execution of rogue systems is easy and commonplace. Unfortunately, most companies lack the discipline to continuously measure performance. To complicate matters, it is not unusual that accountability to initial assumptions made in IT investments is nearly impossible to trace, since roles, responsibilities, and ownership are vaguely defined. Welcome to the world of configuration management, change management, transition management, and governance processes at the lowest levels of maturity. It is impossible to effectively and efficiently manage IT resources without awareness and a detailed catalog of all IT investments, identifying who is accountable, and relevant metrics.

The flaws and disconnects as discussed are manifested in the figures:

72% of IT projects are late, overbudget, lacking in functionality, or never delivered.

Of the 28% “successful” projects, 45% were overbudget and 68% took longer than planned.

50% of managers said they could have realized value with 50% of the cost.

Only 52% of the projects realized strategic value.

According to the Project Management Institute, North American firms spent more than $1 trillion on IT deployments and surrendered nearly $300 billion on late, overbudget, or failed implementations during 1999–2001.1 Focus, direction, and control mechanisms are not core competencies within many companies. These figures are particularly alarming considering that projects and initiatives in the pipeline should represent the engines for growth, modernization, and transformation. Projects and initiatives typically average approximately 25% of the total IT budget (the remainder allocated to assets within operations in such areas as existing applications, infrastructure, people, processes, etc.). Assuming a 30% success rate, only $1 out of $14 spent by the average company’s IT budget can be correlated with new benefits. This is a relatively accurate assertion.

IT continues to subsume a larger percentage of the enterprise budget. The criticality of IT to business operations and the rising cost of downtime will increasingly impact the bottom line. As customer demands continue to increase and as companies expand their operations beyond their own facilities, it is imperative that they focus on demand-side efficiencies and provide impeccable quality, service, integrity, and continuous innovation. As a result, converting fixed IT costs into variable costs through such mechanisms as utility-based on-demand offerings and outsourcing (e.g., infrastructure, application development, application maintenance, business processes) allows companies to focus on their core value propositions. This practice has recently gained traction.

Many companies maintain a sequential series of tightly coupled, hardwired systems that dictate business logic and processes. The resulting infrastructure is inflexible and ineffective in data aggregation and synchronization. Costly overruns are commonplace in extending or adding new processes across divergent and distributed environments. The ability to extend, migrate, refurbish, or retire systems or applications is very difficult as key dependencies, support, and constraints with other applications and systems are often unknown. Thus, it is not surprising to find multiple and redundant enterprise resource planning, supply chain management, portals, customer relationship management, middleware, and operating systems consisting of undocumented ad hoc upgrades and patches analogous to a “spaghetti” architecture.

Technical, business, operating, system, logical, and physical views of the architecture are typically outdated or nonexistent. Misalignment between IT and the strategic intent, inability to establish a common IT architecture, and a highly redundant and undocumented as-is architecture will result in high operations and maintenance costs. Furthermore, this will limit a company’s ability to rapidly respond to unforeseen events and prioritize and reprioritize investments. In today’s unforgiving economy, the result of not conforming to a disciplined IT portfolio management framework is undisciplined growth and drift of business processes that are typically expressed through lack of innovation, slow market responsiveness, and dissatisfied customers. These shortfalls are exposed swiftly, causing debilitating and adverse effects on valuation and the sustainability of a company as an ongoing entity.

To further complicate matters, the emergence of web services, business process management systems, and services-oriented development of applications (SODA), which enable more specialized, plug-in applications, are seminal elements in realizing the vision of an agile enterprise. These flexible new technologies are creating an unprecedented demand for systems to interoperate. Web services and SODA will continue to make the business and IT relationship more critical as IT continues to become increasingly more integral to business processes. The layers of abstraction added to technologies are becoming more visual and model driven. In addition, the introduction of emerging technologies or often just the hype around them (e.g., nanocomputing, grid computing, and peer-to-peer computing) will continue to add to the complexity of IT, making IT portfolio management an increasingly critical capability.

FORMING, NORMING, STORMING: THE IT LIFE CYCLE

Unfortunately, there is no single point of failure that is causing breakage. In fact, there are failure points across the entire IT life cycle that contribute to poor planning, execution, and alignment of projects and initiatives. According to research, fewer than 25% of Global 2000 IT staff have been formally and effectively schooled in project management. The IT life cycle is comprised of three primary phases: the IT discovery phase, the IT project phase, and the IT asset phase.

IT Discovery Phase

Sometimes called the fuzzy front end, the IT discovery phase occurs during the concept and idea stages of basic research. This phase matures IT investments that are typically longer term, riskier, and more uncertain than the other two phases discussed below. The IT discovery phase provides the locomotive that companies utilize to grow and transform the business. Investments in this phase are inventoried, assessed, balanced, optimized, and selected in the IT discovery portfolio.

IT Project Phase

Sometimes called new product development, this phase is governed by a series of stages and gates for managing the life cycle of projects. Investments made in the IT project phase typically are medium- to short-term investments that companies use to help transform and grow the business. Investments in this phase also include mandatory requirements (e.g., legal, compliance, and safety regulations). Investments in the IT project phase are inventoried, assessed, balanced, optimized, and selected in the IT project portfolio.

IT Asset Phase

The IT asset phase describes the portion of the IT life cycle that are currently in operations and maintenance. This phase monitors and evaluates the existing infrastructure, software, human capital management, processes, data, and information. Investments in the IT asset phase are used to help run the business and are inventoried, assessed, balanced, optimized, and selected in the IT asset portfolio.

Shortfalls in the IT Life Cycle

Exhibit 1.1 describes the three primary phases of the IT life cycle, the shortfalls within each of these phases, and the impact as a result of these shortfalls. The bullet points shown in the shortfall areas under the specific phases in Exhibit 1.1 do not necessarily correspond to the phases under which they reside. The majority of companies have formal return on investment, payback period, internal rate of return, and/or economic value-add metrics. However, most do not consistently apply both financial and nonfinancial measurements and processes for evaluating projects and initiatives, and most do not track metrics after implementation.

EXHIBIT 1.1 THREE PHASES OF IT LIFE CYCLE

IT Discovery Phase

IT Project Phase

IT Asset Phase

Shortfalls

Requirements, future capabilities and as-is versus to-be architecture not adequately considered when assessing concepts.

IT concepts are not linked to business, functional, or divisional strategy.

Poorly defined, nonstandardized business cases; assumptions that are not complete or accurate and do not consider risk outliers, feasibility, correlation with other investments, and other dependencies and constraints; lack of decision criteria.

Lack of weighting of attributes.

Distributed, siloed repository of concepts.

Too many concepts in the pipeline, with too few support resources; best resources are not allocated to concepts and ideas.

Few concepts considered that will transform the company; many initiatives are disassociated with the long-term strategic objectives; moving fast can be difficult.

Deficient communications result in fragmented efforts, as resources are not optimally aligned and deployed.

No centralized project management office; no single and consistent project manager throughout the cycle.

No central and visible repository of all projects.

Lack of governance and cross-participation from key executives.

Inadequate gating and filtering mechanisms; ad hoc entry and exit criteria at each major phase.

Inability to optimally scope, cost, schedule, and allocate resources to projects.

Gaming the system with pet projects.

Unwillingness to “kill” projects.

Development methodologies such as spiral, rapid application, and time-box approaches are not utilized; customer/end user feedback is inadequate.

Assumptions are never revisited.

Lack of headroom for resources/funding for unexpected events prohibits ability to rapidly reprioritize and switch directions.

Never turning down a customer, senior management, or marketing request.

Employee skill sets and processes needed to support new solutions are not adequately considered.

Integration and interoperability with existing systems and business processes are not fully assessed.