Portfolio Management - How to Do It Right
- 11 June, 2003 12:51
- Why portfolio management is a key tool for CIOs now
- Tips from leading practitioners on how to do it
- The payoffs and challenges of doing it right
Ron Kifer, Vice President of Program Management at DHL Americas is a veteran of the typical project and portfolio planning - or lack of planning - process in many companies. "The last three organisations I've been in had the same scenario. They didn't have defined processes for reviewing project proposals; projects were pretty much recommended by senior vice presidents in each business area," he says. "They were attempting to do many more projects than they had the capacity to do. Bad projects squeezed out good projects. There was no visibility of what was being done throughout the organisation."
That's a recipe for disaster. At a time when CEOs are demanding that technology investments return value, CIOs who don't have control over their IT project portfolios are fighting losing battles. Surprisingly, that's a good number of you: A recent report by AMR Research contends that as many as 75 per cent of IT organisations have little oversight over their project portfolios and employ nonrepeatable, chaotic planning processes.
But if you're not doing it already, portfolio management can help you gain control of your IT projects and deliver meaningful value to the business. Portfolio management takes a holistic view of a company's overall IT strategy. Both IT and business leaders vet project proposals by matching them with the company's strategic objectives. The IT portfolio is managed like a financial portfolio; riskier strategic investments (high-growth stocks) are balanced with more conservative investments (cash funds), and the mix is constantly monitored to assess which projects are on track, which need help and which should be shut down.
But it's all in the execution. Jeff Chasney, executive vice president of strategic planning and CIO at CKE Restaurants, notes that "some companies do it poorly and some do it well". The companies profiled in this story reveal their best practices for doing it well.
Why You Need Portfolio Management
Think about how it investments are managed in your company; do any of the following scenarios ring true? Million-dollar projects, which may or may not match the company's objectives, are awarded to business units headed by the squeakiest executives; weak IT governance structures mean that business executives don't have clear ideas of what they're approving and why; the CIO ends up selling projects that should be generated and sold by line-of-business heads; the company doesn't build good business cases for IT projects or it doesn't do them at all; and there are redundant projects.
A strong portfolio management program can turn all that around and do the following:
- Maximise value of IT investments while minimising the risk
- Improve communication and align-ment between IS and business leaders
- Encourage business leaders to think "team", not "me", and to take responsibility for projects
- Allow planners to schedule resources more efficiently
- Reduce the number of redundant projects and make it easier to kill projects
All that means is more dollars in your piggy bank. Dennis Callahan, executive vice president and CIO of Guardian Insurance, and Rick Omartian, CFO of Guardian's IT group and chief of staff, claim that portfolio management has reduced their company's overall IT applications expenditures by 20 per cent and that, within that spending reduction, maintenance costs have gone from 30 per cent to 18 per cent. Eric Austvold, a research director at AMR research, says companies doing portfolio management report saving 2 per cent to 5 per cent annually in their IT budgets.
There's no single right way to do IT portfolio management. Vendors, consulting companies and academics offer many models, and often companies develop their own methodologies. Off-the-shelf software is available from a variety of vendors.
But there are plenty of hurdles to doing it well. There are, however, best practices and key logical steps that can be gleaned from organisations such as Brigham Young University (BYU), DHL Americas and Eli Lilly, which have integrated portfolio management into the fabric of IT management, as you'll see in this story.
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