Everyone has their own tricks to ensure their projects stay on track. Like high school students sitting exams, we all have our equivalent of lucky underwear. In fact, if you start looking for advice on what makes projects successful, you’ll find it by the bucket load. Ideas will flow your way until you have so much that you could easily spend all your time doing the things that prevent project failure, and not doing the things that get your project done. So how do you choose what actually works?

One of the advantages of meeting people through facilitating seminars is that I get to talk to experts in their fields. Put 40 project managers in a room and you’ll end up with some strong opinions, but at least you’ll know that they are speaking from experience. Their techniques work.

So standing in front of a group of delegates recently, I asked them what they do to make their projects a success. We came up with 27 different things to do to improve the chances of a project not failing from the simple (“test”) to the obscure (“GOBIGL”). Several themes were evident, and as we grouped the responses on a flip chart the top three tips for project success became clear.

1. Manage your stakeholders
Work out who your key stakeholders are – the list is likely to be much longer than your first expect. Involve the project team in identifying different internal and external stakeholder groups as by yourself you’ll never think of everyone. Then prioritise: who from that list needs to be involved in the project? Establish a governance framework of key stakeholders with regular meetings. You’ll probably end up with several different groups: your project steering group, of course, but also others. How about holding a user forum? What group of people need to see your weekly progress report?

Absolute support from key management stakeholders and your project sponsor is the number one thing for project success. After all, if your sponsor isn’t interested in the end result, why are you bothering?

2. Manage your risks
First things first: you can’t manage risks unless you work out what those risks are. Spend some time upfront with your project team identifying all the things that could go wrong. Then put some action plans in place straight away to mitigate against them.

Risk management is not just a one-off exercise. You should do monthly risk review meetings, but don’t feel that the project team have to wait until that session before they raise a risk with you for the log: they can (and should) be sending you details of impending risks as soon as they become aware of them themselves.

3. Expect and manage change
What you set out to do at the beginning of a project will not be what you deliver at the end. Period. Unfortunately life doesn’t stand still, and neither does business. The requirements and scope may change as the business evolves over the lifecycle of the project or as your end customer develops a better appreciation of what they have asked for.

If you expect change to happen you will be better at handling it when it comes along. What is your change control process? How are revisions to scope or plan going to be handled? Early on, identify how you will get stakeholders to approve all changes. Then when the inevitable happens, your change management procedure can swing into action creating the least disruption to the project possible.

There is no secret formula for project success: if there was, the statistics about project failure wouldn’t be so disheartening and project managers salaries would be several times what they are today. Many things conspire to make projects fail, but getting the basics right and following the tips above will go a long way to making sure your project isn’t one of those.

Oh, and if anyone was wondering about GOBIGL, it stands for get out before it goes live!

We will conclude our series with a look at a key study and conclusion of findings which will answer this question:  Why should a business do Information Technology Portfolio Management?

Introduction to the Study
The process of Portfolio Management involves decision-making based on the entire corporate environment. In order to make the best choices for the corporation, management must evaluate each initiative as it relates to corporate goals and objectives, available resources and project dependencies.  This is a continual process that evolves throughout the budget year.

The research on Information Technology Portfolio Management provides an array of different approaches for a common objective. The goal of all approaches to portfolio management is to focus resources on the appropriate projects and assets to meet the needs and objectives of the business. Key prerequisites for a successful implementation are governance rules, business engagement and executive sponsorship. The statistics prove that Information Technology Portfolio Management can affect the bottom line for spending. Project selections are no longer evaluated on the bases of who makes the loudest request. Hard numbers supporting the return on the investment are required for justification. This shift in the evaluation eliminates “pet” projects from receiving a high priority over more profitable ones. Portfolio Analysis of all forms leads to a common goal. The profitable return on investments from all product lines and business units is the end objective.

Benchmarks for industry standard portfolio investment mix are available for comparison to standard practice. With an eye toward business goals, decisions are migrating to a structured distribution for investing the limited resources available. Variations from the industry are common, but should require business critical justification for successful Information Technology Management.

The trend to relate information technology and business savvy is evident in the job market. A Gartner Group study reports that by the year 2010 six out of ten information technology employees will have business-facing roles. The need to have a strong business knowledge foundation and education are rapidly becoming requirements in the recruiting of mid to top level information technology positions. These positions all require strong partnership with the business. Employers are looking for experience that can not come from an individual straight out of college.

The substance of Information Technology Portfolio Management is to measure, manage and control information technology investments. The terminology and metrics are secondary to the continual evaluation of investments and spending. The once or twice a year review of budget numbers is no longer sufficient for management of modern day information technology departments.

The business case development captures the risk and rewards for a proposal. A strong business case is more import than ever. Companies are moving to a model that relies more on the true Return on Investment (ROI) then ever. The supporting information behind a proposal determines how it will compete with the various information technology priorities.

Project Portfolio Management metrics have been established by professional organizations evolved with business practice and converged with Six Sigma concepts. The PMBOK Guide was developed by the Project Management Institute as a standard for project management techniques. This guide is an accumulation of “generally accepted” project management practices. The guidelines can be adapted to fit different types of business applications. In more recent years these guidelines have been combined with the methods and tools of Six Sigma. This section will discuss the metrics from the PMBOK, Six Sigma and standard business practice.

The goal of this research is to examine the methods used in current Portfolio Management practice for decision making in large corporations. The primary example used for this study will be International Defense Contractor (IDC) currently developing a Portfolio Management Prototype. The following questions will be addressed in resolving this question:

1. What is Information Technology Portfolio Management, and why is it important in todayís business environment?
2. What metrics are used in the implementation of Information Technology Portfolio Management?
3. How does Information Technology Portfolio Management affect the use asset and project planning?

Summary of Findings
Some people describe the information technology investments as classified into Transactional, Informational, Strategic and Infrastructure. Transactional investments reduce the cost of processing systems or increase the throughput. Informational investments improve the availability of analysis data for accounting, management, control, communications or collaboration. Strategic investments improve competitive advantage or market share. Infrastructure investments are the foundation of the shared information technology environment including networks, personal computers, servers and data bases.

The mix of these investments requires management and balance based on the priorities and goals of the business. The pyramid visualizes the balance of Information, Strategic, Transactional and Infrastructure investments by percentage. Infrastructure is at the base of the pyramid to represent the foundation of the information systems. Based on a study of 147 firms in 2001, the average percentage of total information technology spending allocated to infrastructure was 54%. Transactional systems represented 13% on average. In environments where new transactional systems are being implemented, this percentage was also affected by the existing infrastructure. If the necessary infrastructure is already in place for a new transaction system, the cost of the new investment was decreased. When an additional investment is needed to support a new transaction system, the percentage increased in both areas. Informational systems averaged 20% and depend on both the Transaction and Infrastructure to support new investments. The remaining 13% of the total average is Strategic with a possible dependency on existing systems.

Business objectives drive information technology investments. The balance of investments are demonstrated based on business goals. A cost focused firm has a lower total spend with an average distribution of only 5% in strategic investment. Agility focused firms tend to have a higher total Information technology spend with an average distribution of 17%. One point of interest on the distribution for the agility focused firm is that the infrastructure percentage is also increased. This demonstrates the close relationship between new strategic initiatives and the infrastructure to support these efforts. Economic factors also play a part in the weighting of Information Technology Portfolios. Tough economic periods force firms to take a cost-saving-oriented approach to Information Technology Portfolio Management.

The Framework and Process can be divided into three sub portfolios. The Discovery Portfolio is composed of investments that are in the infancy of development. These investments are ideas that need to be captured and developed. The Project Portfolio is composed of investments under way. These projects have passed the initial approval process and are in various stages of development. The Asset Portfolio is made of the existing investments.  These investments include infrastructure, software, data and information, people and processes. There is a distinctive flow from Discovery, to Project, to Asset.

In another case study around the implementation of Information Technology Portfolio Management significant benefits were achieved. Since the implementation some companies achieved a 193% ROI on its investments. Labor Expenses have been reduced by 8% in only one year. An amazing $10 million savings was accomplished with a single Enterprise Geographical Information System Implementation versus decentralized systems. The organization was able to adapt rapidly to changes in business priorities. Adjustments to the budget moved to fact based decision making. Customer satisfaction and confidence increase exponentially as the portfolio maturity increased.

Final Conclusions
Why do Information Technology Portfolio Management? The statistics are clear on the improved capability and productivity that can be gained. The advantages range from the ability to detect overlapping projects to a stronger alignment with the business goals and objectives. The obstacles encountered in establishing the portfolio pale in comparison to the gains it brings to the improved investment results. some have proposed that information technology should be run like a business. The point that information technology organizations have been preoccupied with technology and neglected the business sense in budget management. The process of portfolio management is a high priority and visibility effort. The position of Chief Information Officer has been created to shoulder the responsibility of this area. This demonstrates the level of commitment invested into the concept.

The advantages to the business range across many possible improvements. Evaluation at the enterprise level can yield improved revenue overall or within a specific sector. Opportunities to create, consolidate, and retire products become visible with the creation of the asset portfolio. The evaluation of investments by classification demonstrates the focus of capital. This distribution of investments can be measured against industry standards and compared with the business goals for improved alignment.

Portfolio Management changes the conversation with the business customer. The past practice of holding the CIO to a fixed budget with an endless list of business requirements migrates to a discussion of decision making based on resources and business priorities. By viewing information technology as a business within a business, a new healthier relationship with the customer can be achieved. The days of shopping cart approach to picking and choosing technology based on emotion and buzz word trends are numbered. The discipline established by a strong portfolio moves to an environment tied to hard returns and business objects focus.

A stronger governance structure is very important to bring the full strength of the portfolio to an optimized state. It has been described as the two main components of governance as the decision-making mechanisms, and the assignment of decision making authority and accountability. In organizations that support local spending and decision making, it is impossible to optimize spending for the enterprise. The governance structure must support visibility and accountability at the enterprise to meet the needs of the portfolio.

Many companies fail to gain control of the portfolio because they do not have the information in place to implement a portfolio. According to research done by the Meta Group, 89% of companies do not have the metrics in place to perform portfolio management. Business Cases are only completed by 16% of companies. In 84% of companies, the budget review and adjustment process only takes place once or twice a year.

The Project Portfolio is an important tool for appropriately managing the Information Technology Portfolio. Projects are the frequently managed in separate planning tools. The lack of an overall view of the resource allocation for the total resource pool leads to over allocation and poor visibility of the issue. A centralized planning tool provides visibility of contentions between projects. In the interviews with the IDC sector representatives, the lack of resources on the right projects at the right times became a common theme. At this point in time, the sharing of resources between sectors is very limited. The ability to shift resources to business critical initiatives is coordinated through phone calls and e-mails. The most valuable resources are frequently over extended with no relief from the current planning system. Industry estimates are projected at an over commitment in the range of 200 to 300% on resources of an average research and development organization.

An effective Information Technology Portfolio goes beyond the measurement of ROI. To truly optimize the resources and opportunities of the Information technology organization, other factors need to be considered. The satisfaction of the business customer with the technology is difficult to measure, but is an important piece of the evaluation of assets. The ability to manage, grow and evolve operational system over the long term will influence replacement, upgrade and retirement decisions. New initiatives require a direct tie to strategic goals. Efforts that do not support the strategic goals of the customer are suspect ìpet projects.î Technology for the sake of technology efforts frequently do not add to the bottom line.  To bring the investment full circle, the estimated value must be measured against the actual results. This is an area that many companies fall short.  The business case evaluation at the end of the initiative should receive the same amount of scrutiny as at the proposal phase. Providing this feedback to the business customer creates an environment of trust and value realization.

We’ll continue our discussion to address this question:  How does Information Technology Portfolio Management affect asset and project planning?

The main components to Portfolio Management are the Discovery Portfolio, Project Portfolio and Asset Portfolio. The Discovery Portfolio captures opportunities, ideas and concepts. Contained in the Project Portfolio are proposed and approved projects that expand, replace or correct information technology solutions. Asset Portfolio items are a compilation of people, applications, information, and processes. This series will investigate the changes required to Project Management and Asset Management for the implementation of a portfolio. With the hundreds of billions of dollars in information technology spending each year, the importance of the problem cannot be understated. Many companies do not have the processes in place for tracking current investments or validating expected results. A continual stream of information on projects and resources to evaluate and adjust investments is needed to best manage the portfolio.

Project Portfolio
Enacting checks and balances into the Project Portfolio can improve the work in process state of the portfolio. Variances in the project process will become visible at a much higher level. The issues that can be brought to light include incomplete requirements, poor estimating techniques and over allocated resources. All stakeholders, executive sponsors, program managers and project managers must have visibility to the status of projects underway in order to make adjustments and adapt to changing business requirements. One of the most difficult cultural changes for most companies is the willingness to kill projects. It is good practice to cancel poorly performing projects or projects that need to give up resources for a new initiative with a higher business priority. The Project Portfolio Organizational Flow below represents the relationships between project management with the business using processes and tools for checks and balances. Organizations require a “dynamic measurement mechanism” to properly evaluate and adjust the consumption of resources against the goals and priorities of the business.

Project Portfolio Organizational Flow

In a survey of 250 customers provided, approximately 12 percent of projects are “broken in some way, shape or form.” This is significantly lower than industry statistics that report the number at approximately 70%. Of the 12 % of problem projects, the survey despondence reported a 55% recovery rate when the problems were recognized early in the project. The key to improved project management results is accurate cost and time data. The survey also revealed a 6.5% cost reduction from improvements in tracking time alone.

Asset Portfolio
Asset portfolios primary goal is to provide visibility of the health of the resources of the company. This is important to managing and assessing the health for future planning. The following attributes are key in the evaluation of business value for applications:

1. Importance of the system to the business unit
2. Investment in the system
3. Technical quality of the system
4. Level of use of the system
5. Perceived management value of the system

Measuring the importance of a system can be difficult and subjective. The more closely aligned with the business goals and objectives, the more apt the system is to be perceived as important. Personal judgments from the business customer are critical inputs to the decision make process. Development of a systematic approach can be challenging.

A high level evaluation of applications can be performed with the business value and technical condition. Applications in the lower left quadrant are candidates for replacement, consolidation or elimination. This grouping is a collection of applications that are of poor technical quality and low business value. Applications in the lower right quadrant are candidates for reengineering or modernizing. This group is worth additional investment due to the business value provided. The upper left quadrant contains applications of high technical quality with low business value. This group should be looked at for repositioning. The upper right hand quadrant is the desired location to transition to for the majority of the applications. This does not imply that once an application moves to this quadrant there is no need to evolve and maintain. The following picture depicts a three year progressive migration from a typical technical condition to a business focused, technical savvy company.

Three Year Progressive Migration

Benefits from Portfolio Management will come from a number of areas. The main goal of the portfolio management effort is to increase visibility of the information technology value to the business customer. The initial effort will focus on business case development with the customer. This information will be consolidated into an enterprise application for portfolio management.

The first steps in moving to in this new direction is to evaluate where each sector in the organization stands currently with their existing process.  The following questions were asked to a group from each sector to gage the maturity level:

1. Describe the level of Governance currently in place at this sector?
2. Do you have a governance effort under way?
3. Does your organization use the standard business case development process? And to what extent?
4. Does your organization capture projects that don’t make the cut at budget time? Are these projects saved for evaluation later?
5. Does your organization us the standard Project Management Methodology? To what level?
6. What metrics do you capture about the projects?
7. Does your organization perform monthly Project Management Reviews?
8. What tools are used for Resource Management? How effective are the tools with planning and adjusting throughout the year?
9. How credible is your asset inventory information and groupings?
10. Are there any issues that would need to be address prior to implementation of a Portfolio Management Tool?
11. Are there any additional things that we should know about differences in your organization from the other sectors?

 
During the interviews, the participants were encouraged to speak freely about the true state of the process and information at the sector. The resulting maturity evaluations are enumerated and represented by bar chart. As demonstrated by the maturity ratings, most of the sectors are at the equivalent stages of development. In a few of the categories, pilot efforts into more advanced applications have advanced the sector to a higher rating. Conversely, some sectors have not yet adapted to the existing standards set forth by the enterprise. These late adaptors will lag behind the others.

Maturity Evaluations Bar Chart

The evaluation criteria developed by the software vendor considers the following levels: 1 – Informal, 2 – Defined, 3 – Managed, 4 – Measured and 5 – Optimized. The resulting maturity evaluations are enumerated and represented by bar chart. As demonstrated by the maturity ratings, a similar pattern showing that the sectors are at the equivalent stages of development. The comparison for the more advanced sectors and late adaptors also applies to this evaluation scheme.

The maturity evaluation for the sectors demonstrated a need for Portfolio Management. Each group recognized that in some areas of the portfolio, an improved service to the business customer could be achieved. Only a few members of the interview group were completely apposed to the idea of implementing an Information Technology Portfolio.

The Discovery Portfolio concepts were well received by all sectors. The collection of proposal information into a central repository was an idea of universal consensus. As part of the Information Technology Portfolio Management Pilot, this information was collected and entered into a software application. A notable issue in this area was that the information was not readily available, updated with the most recent data, and in some cases, incomplete. With the visibility of a central repository for business cases, it is improbable that this would go un-noticed.

The Project Portfolio concepts met with some resistance. Three of the eight sector representative saw no need for project or resource metrics in the portfolio. The remaining five sector representatives recognized a need for improved project visibility and human resource optimization. A representative stated that “getting resources is like pulling teeth, never enough.” Another representative added that “projects get off to a rough start due to resource issues.” This sector also experiences difficulties responding quickly to shifting priorities. Resource management is facilitated using manually updated Excel spreadsheets. This method is labor intensive and not reflective of the current project status for each resource. Resources that will not be released from a prior project in time to begin the next are frequently undiscovered until it is too late to make adjustments. Shifting resources due to changing project priorities is also an issue creating delays in project initiations. At the other end of the spectrum, the CIO of another sector states that, “IT Resource Management on a large scale does not work. The value does not justify the cost.” This particular sector has a low percentage of non-recurring spending.

The Asset Portfolio was of great interest to the group. One sector performed a pilot of an Asset Portfolio. The pilot information was extracted from existing software packages for application inventories, maintenance, and accounting. In joining the information, it was discovered that inconsistent application labeling created a high level of complexity in the calculation of total cost of ownership. This will be an issue for all of the sectors in implementing the portfolio. The long term solution will involve changes in the source systems to create common data elements for analysis. For the pilot, only a high level analysis was developed based on the granularity of available data.

The Information Technology Portfolio Management implementation will require changes to the way projects, resources and assets are measured and evaluated. Each sector will evolve through the maturity models at different rates based on the areas of priority to the business counterpart. Sectors with a large percentage of non-recurring project work will focus on the Project Portfolio. Sectors with a majority of recurring systems expense will focus on the Asset Portfolio. Change management and communications will be an import part of the implementation regardless of the maturity level.

Join us for Part 5 of this series which will conclude this study of Portfolio Management.

We’ll continue our topic with this question in mind:  What metrics are used in the implementation of Information Technology?

The business case development captures the risk and rewards for a proposal. A strong business case is more import than ever. Companies are moving to a model that relies more on the true Return on Investment (ROI) then ever. The supporting information behind a proposal determines how it will compete with the multiple information technology priorities.

In the CIO Magazine article “How to Make Your Best Case”, Lauren Gibbons Paul outlines five essential rule for creating the best case for a proposal.

1. Rule One: Know you company’s needs. A strong business case must be supported by a business objective.
2. Rule two: Partner with a business sponsor. The business case must be developed with the business management team. Debra Still, Executive Vice President and Chief Operating Officer for Pulte Mortgage, utilizes a team including an information technology representative, business representative and project manager for their business case development.
3. Rule three: Build a rational cost-benefit picture. Define the type of project benefit that will be gained and drill into the detail for measurable returns.
4. Rule Four: Don’t ignore soft benefits. Factors like brand image and customer satisfaction are difficult to measure, but they should not be left out even with a strong hard benefit case.
5. Rule Five: Make the business partner own the benefits. To ensure that the benefit is realized, the business sponsor must agree and follow through on the business end. A project that promises to reduce headcount will only deliver the reduction through the business follow-through. This is “more art than science”.

Project Management Metrics
Project Portfolio Management metrics have been established by professional organizations evolved with business practice and converged with Six Sigma concepts. The PMBOK Guide was developed by the Project Management Institute as a standard for project management techniques. This guide is an accumulation of “generally accepted” project management practices. The guidelines can be adapted to fit different types of business applications. In more recent years these guidelines have been combined with the methods and tools of Six Sigma. This section will discuss the metrics from the PMBOK, Six Sigma and standard business practice.

The PMBOK guide recommends performance reviews at regular intervals throughout the project lifecycle. In Figure 3.1, a set of standard project performance metrics are displayed by project Work Breakdown Structure (WBS) Element or milestone. These analysis metrics can be grouped by variance, trending and earned value.

Figure 3.1

Variance Analysis utilizes comparisons between estimated and actual values. In the picture above, the cost and schedule variances are displayed by WBS element. The cost variance is calculated by subtracting the earned value by the actual cost. Earned value is equal to the budgeted cost of work performed (BCWP). This number is calculated by determining the cost of the work at a point in time based on the estimate. For example, the estimated cost at the end of the Pre-Project Plan is $58,000. The actual cost at this point in time is $62,500. Therefore the cost variance is negative reflecting that the project is likely to complete under budget. Schedule variance is calculated in a similar manor based on the estimated schedule versus the actual schedule.

Trending Analysis looks at the performance of the project over time to determine whether it is proceeding positively or negatively to plan. In the next picture, the actual cost and earned value are compared to the cumulative planned value over time. This example demonstrates a project that is trending poorly to the planned value. Adjustments will be required to bring the project back into alignment with the plan.

Figure 3.2

Earned Value Management (EVM) is a project performance method that utilizes the combination of scope, schedule and resources to determine project health. The three key values used for EVM are Planned Value, Actual Cost and Earned Value. These base measurements are used to calculate Cost Variance, Schedule Variance, Cost Performance Index (CPI) and Schedule Performance Index (SPI). CPI is a cost indicator and is calculated using Earned Value divided by Actual Cost. SPI is an indicator of the project schedule health and uses Earned Value divided by Planned Value.

As project portfolio management has evolved, the need to provide business savvy information on projects has grown. Measurement systems that provide the business with the information need to make corrective action on projects in the portfolio. This measurement system involves the creation of benchmarks to evaluate performance, comprehensive evaluation factor, informational data in business terms, alignment with stakeholders, clear and meaningful terminology, and established data collection periodicities. Providing the business with information in metrics that support the appropriate corrective action is critical to portfolio success. Financial performance, production and strategic goals are metrics best applied to the business customer.

Six Sigma methods are now converging with the Project Management methodologies. As Program Management Offices strive to improve quality, Six Sigma becomes an attractive tool for process improvement.

A member of the Executive Consulting Group for Robbins-Gioia and certified Six Sigma Master Black Belt, specializes in working with government agencies and private industry on the use of Lean Six Sigma Scorecards to evaluate and improve project investments. The question that they present to customers is “What do we see in return?” The measurement of “quantifiable and unquantifiable benefits” is critical to improving investments in the portfolio.

An important point that is focused on is that the tools don’t make the improvements. The decisions that are altered based on the availability of information generate improvements to the project management practice. Variations in project management process are the root of many defects. The organization must practice a consistent, structured process to reap the benefits of Six Sigma efficiencies.

Asset Management Metrics
If you don’t know what you have and how it’s being used, you can’t manage it. The Asset Portfolio does exactly that task. The first piece of measuring the asset environment is an inventory. The second step will be to identify key performance indicators, strengths and weaknesses. The third step is to refine the description and classifications of asset management. These steps lead to the creation of an Asset Portfolio.

Asset metrics are often difficult to collect. The total cost of ownership may be spread across several different sources of information. The Information Technology Portfolio Management Step-By-Step book recommends working with a baseline of information collected from key knowledgeable stakeholders and documentation at a high level.
A highly evolved organization looks to the next level of asset management. All of the following should be considered as part of the asset management evaluation process:

• “Overall strategic business objectives and current business requirements
• External developments and innovations in the IT marketplace
• IT developments and investments among competitors and other industry players
• Internal business and IT insights, recommendations, and requests pertaining to IT
• Seek cross-functional and cross-business unit IT investment opportunities that enable or strengthen the company’s competitive advantage
• Identify and recommend responses to external IT-based threats
• Recommend action on acquiring competitive-parity IT capabilities”

Asset Portfolio management goes beyond the inventory and service level agreements of yesterday’s Asset Management. CIO Magazine Executive Editor, asks the question, “How about starting with the business strategy of the company and proximity of customers to information products and services and working back to a number from there?”. Creating the Asset Portfolio is a step in that direction. The assets are classified into Strategic, Infrastructure, Transaction, or Informational. The decision to invest in any of these classifications must be tied to business objectives.

Data
Value and Risk are the two key elements in the evaluation of a business case. In this picture, a graphical representation of the breakdown by business objective is exhibited in a bubble chart format. In the evaluation of the information in this picture, the high priority on lowering cost is reflected in the types of proposals under consideration. The number of individual proposals and the funding, or sized, of the proposals both support cost reduction as the primary focus.

Figure 3.3

Looking at the risk and value bubble chart by asset classification will also provide insight to the decision making process. Transactional investments demonstrate a focus on reducing the cost of doing business. The majority of proposals fall into the classification of transactional. This phenomenon supports the goals and objects of the business for cost reduction. Had the results of the graph demonstrated a concentration in strategic classifications, a misalignment with goal and objects would be clear.

The size of the bubble represents the relative dollar amount of the proposal. Proposals that are of high value and low risk are the most desirable. Proposals that fall into the low value and high risk quadrant of the bubble chart will be highly scrutinized by the management review process. The other observation to note between the two bubble charts is that the proposal in the above picture is classified as innovation corresponds with this next picture under a strategic effort.

Figure 3.4

Project Management Metrics
The Project Management example data was based on both real life examples and test scenarios. During the time span of the portfolio management pilot, a six week Business Intelligence Assessment took place. This project was used as an example for execution and analysis of the project by the tool throughout the lifecycle of a project. The information in the live simulation will not be included due to company confidentiality. For example purposes, two earned value demonstrations were fabricated.

Earned Value Management is an important indicator of project health. In this Table, the values are listed for the Positive Earned Value Project. This example shows a project that has accomplished more value than the actual cost expenditure at this point in the project. Visibility to the under-run would allow funds to be reallocated to different investments early in the project instead of at the end of the lifecycle. The next chart plots the projected values and reflects a healthy completion under budget.

Figure 3.5

Figure 3.6

Earned Value will also allow for adjustment to the plan for recovery. In this Table, the values are listed for the Negative Earned Value Project. This example shows a project that was not performing well through the week of 01/30/06. Adjustments to the project made it possible to accomplish a recovery and complete the project under the projected cost. In the following chart it plots the projected values and reflects the budget by timeline.

Figure 3.7

Figure 3.8

Asset Management Metrics
Evaluation of assets for the Portfolio Management Pilot was performed at a high level. The total number of individual applications was too large to aggregate to a level that could be easily tied to financial information in the time frame for the pilot. In this picture, a graphical representation of the asset mix is represented. This graphic is a representation of the number of applications within each asset classification, not the dollar value.

The information to determine the total cost of ownership was not readily available. The process to develop this metric took several days and conversations with the application owners and business management representatives. The asset management information was not mature to the point that project information had achieved.

Figure 3.9

This representation can be compared the Information Technology Portfolio Pyramid for a Metal Manufacturing firm. The Informational Asset differential is driven by the unique reporting requirements enforced by the government. The Strategic Asset area is also limited due to the nature of the customer base and product line of this particular sector. Cost reduction and compliance are the priority to meet the goal of the business. These elements of the business environment create differences from a standard manufacturing company. The percentages in each asset classification are intended to serve as a baseline. Deviations for the standard should be explained by business goals.

In this next pie chart, is a representation of new projects by asset classification according to number count, not dollar amount. A dollar representation would be a more appropriate measure for real life analysis. The distribution between the percentages should be directly correlated with the goals and objective of the business. This distribution supports the goal of lowering cost by investing in Transactional Assets.

Figure 3.10

Analysis
The metrics collected to support the portfolio are critical to the success of the decision making process. From the development of the business case through project management to the creation of an asset, accurate information is the key to making the right choices. During the informational work sessions with each sector, a common concern was that one of these pieces was not important or necessary to the portfolio.

The business case is a mandatory set of information in the creation of the portfolio. Without these key elements, a selection based on facts instead of instinct is not possible. As we view the graphical representation of the risk and value bubbles, it is important to note that there is an underlying business case to support the size and position of each bubble. In addition to having a visual view of the charts, it is necessary to provide the drill down into more specific information to determine whether a proposal is truly the correct fit for the company and current business environment.

Project performance metrics demonstrate how the portfolio investments are performing. As with personal investments, once a stock has added to an investment portfolio, a continual evaluation process takes place and adjustments made based on the performance. The project portfolio must be managed in a similar fashion to optimize the existing investments and adjust for changes in priorities and poor performance.

The Asset Portfolio provides a view of the recurring budget spend for a company. This information is important to the evaluation of continuing current investments. The decision to retire an asset that is no longer providing the business value can be validated with hard metrics instead of a desire to update technology. This process is also dependent on the collection of metrics specific to the total cost of ownership information available by application.

The metrics that support the portfolio are the foundation of the process. The development of the portfolio takes many phases and experimentation with different data sources.

Join us for Part 4 of this series as we cover how Information Technology Portfolio Management affects asset and project planning.

What is Portfolio Management, and why is it important in today’s business environment?

Information Technology Portfolio Management concepts are frequently compared to Financial Portfolio Management.  The Information Technology Portfolio differs from an individual’s financial portfolio in the need to evaluate the information technology spending as a whole.  Todd Datz describes the nature of an Information Technology Portfolio as “managed like a financial portfolio; riskier strategic investment (high-growth stocks) are balanced with more conservative investments (cash funds), and the mix is constantly monitored to assess with project are on track which need help and which should be shut down.”  The investment decisions of an individual are similar to the investment decisions of a company.

Peter Weill, the director of the Center for Information Systems Research (CISR), compares the similarities as “any other investment portfolio, the Information Technology Portfolio must be balanced to achieve alignment with the business strategy and desired combination of short and long term pay off.”  In a research briefing published by MIT Sloan, Weill and Sinan Aral, PhD Candidate at MIT Sloan Center for Information Systems Research, describe the information technology investments as classified into Transactional, Informational, Strategic and Infrastructure. Transactional investments reduce the cost of processing systems or increase the throughput.

Informational investments improve the availability of analysis data for accounting, management, control, communications or collaboration.  Strategic investments improve competitive advantage or market share.  Infrastructure investments are the foundation of the shared information technology environment including networks, personal computers, servers and data bases.

The mix of these investments requires management and balance based on the priorities and goals of the business.   In the following figure, the pyramid visualizes the balance of Information, Strategic, Transactional and Infrastructure investments by percentage.

In Figure 1, Infrastructure is at the base of the pyramid to represent the foundation of the information systems.  Based on a study of 147 firms in 2001, the average percentage of total information technology spending allocated to infrastructure was 54%.  Transactional systems represented 13% on average.  In environments where new transactional systems are being implemented, this percentage was also affected by the existing infrastructure.  If the necessary infrastructure is already in place for a new transaction system, the cost of the new investment was decreased.  When an additional investment is needed to support a new transaction system, the percentage increased in both areas.  Informational systems averaged 20% and depend on both the Transaction andInfrastructure to support new investments.  The remaining 13% of the total average is Strategic with a possible dependency on existing systems. The Information Technology Portfolio balance is dependent on the business goals and type of industry.  The correct distribution of investment for an insurance company would not meet the needs of a manufacturing firm.

Figure 2 provides a view of the Information Technology Portfolio over different industries. The average portfolio mix for an insurance company is 54% Infrastructure, 14% Transactional, 12% Informational and 20% Strategic.  One firm selected an Information Technology Portfolio mix of 40% Infrastructure, 40% Transaction, 15% Informational and 5% Strategic.  This investment distribution would be appropriate for an insurance firm planning a low cost strategy.  The reduction in spending compared to the industry average investment will allow for more competitive pricing for their customers.  Can you explain the difference between your portfolio and the industry average by your strategy?

Business objectives drive information technology investments.  In the next figure the balance of investments are demonstrated based on business goals.  A cost focused firm has a lower total spending with an average distribution of only 5% in strategic investment.  Agility focused firms tend to have a higher total Information Technology spend with an average distribution of 17%.  One point of interest on the distribution for the agility focused firm is that the infrastructure percentage is also increased.  This demonstrates the close relationship between new strategic initiatives and the infrastructure to support these efforts.  Economic factors also play a part in the weighting of Information Technology Portfolios.  Tough economic periods force firms to take a cost-saving-oriented approach to Information Technology Portfolio Management.

Industry Specific Guidelines for Information Technology Portfolio Management

In an industry specific study done by the Gartner Group, the four classifications are divided into Frontier, Enhancement, Utility and Infrastructure.  Frontier investments are applications resulting in major changes in mission performance.  Enhancement investments are applications geared toward improvements in mission performance or speed, cost and quality.  Utility investments are essential applications such as payroll and human resources. Infrastructure investments are equivalent to the infrastructure in the previous model.  In Figure 3, Gartner illustrates average Information Technology Portfolio distributions for government organizations by Local, State and Federal business areas.  For the federal government organizations the approximate distribution for infrastructure is 41%; utility, 22%; enhancement, 22%; frontier, 15%.  

The three primary focuses of an Information Technology Portfolio are Process & Framework, Analysis Tools and Governance.  The Process & Framework are standard methods for planning, creation, assessment, balancing and communication of execution.

Analysis Tools will be required to evaluate the value, costs, risks, benefits, and requirements of the business investments. Standard scoring with weightings will be applied against investment data to rank and prioritize information technology spending.  Governance is the overlying policies andguidelines for decision making.  These are the rules of engagement for the Information Technology Portfolio Management Process.

The Framework and Process can be divided into three sub portfolios:

1. The Discovery Portfolio is composed of investments that are in the infancy of development.  These investments are ideas that need to be captured and developed.
2. The Project Portfolio is composed of investments under way.  These projects have passed the initial approval process and are in various stages of development.
3. The Asset Portfolio is made of the existing investments.  These investments include infrastructure, software, data and information, people and processes. There is a distinctive flow from Discovery to Project to Asset.

A group of Information Technology Program Managers (ITPM) and Functional Managers are brought together for the Information Technology Portfolio Management Kick-Off Meeting.  The members of the group range in background from six month of exposure to the Portfolio Management Environment to no previous experience.  In addition to the sector team members, a consultant with Information Technology Portfolio Management expertise, an enterprise program manager and an enterprise representative lead the group discussion.  Each ITPM team member represents the interests of a Business Sector within the enterprise.  The goal of the meeting is to explain the concepts of Information Technology Portfolio Management and gain consensus on the scope, requirements and approach for implementation.  Guiding principals, enablers and barriers will also be defined with the group.  The group discussion evolved around the concerns of the implementation of an initiative of this enterprise scale.  Communications with the business area on the process change was the highest priority to the group.  It will be imperative to attain the buy-in from the business customer for a successful transition.  The maturity of the Governance process at each sector varies.  Governance will need to be in place prior to the roll-out of an Information Technology Portfolio tool set.  Resource constraints for the working roll-out team have not been established.  Each sector will be required to provide budget and resources.

The Scope of the project at a high level was established by the group.  The implementation will be a phased approach with an initial focus on the breath and not depth approach across Discovery, Project and Asset portfolios.

Analysis Benefits of the Information Technology Portfolio Management

The benefits of establishing an Information Technology Portfolio can be large depending on the current level of business alignment and governance practices in place.  Without the framework for a solid evaluation process, million-dollar projects are undertaken with little or no business case or business objectives.  In large organizations redundant projects are common due to a lack of a common Discovery and/or Project Repository.

The implementation of a good Information Technology Portfolio Management process is measured by a reduction in overall spending and increase in business customer satisfaction.  Areas of improvement are value maximization with minimized risk, partnering with the business to improve communication and business alignment, optimization of resource scheduling and reduced number of redundant projects.  All of these efforts add to the bottom line for the business.  

The statistics are available to support the need for portfolio management in the information technology environment. Research supports an annual savings of 2 to 5 percent for companies doing portfolio management.  Some companies even report a reduction of 20% for application expenditures and an education from 30% to 18% in maintenance costs alone.  Other benefits are more difficult to assess.  Some bookes have described the non-tangible prospectus of the process:ìA good evaluation process can help companies detect overlapping project proposals up front, cut off projects with poor business cases earlier, and strengthen alignment between IS and business execs.” 

Summary of Findings

The research on Information Technology Portfolio Management provides an array of different approaches for a common objective.  The goal is to focus resources on the appropriate projects and assets to meet the needs and objectives of the business.  Key prerequisites for a successful implementation are governance rules, business engagement and executive sponsorship.  The statistics prove that Information Technology Portfolio Management can affect the bottom line for spending.

Benchmarks for industry standard portfolio investment mix are becoming a standard practice.  With an eye toward business goals, decisions are migrating to a structured distribution for investing the limited resources available.  Variations from the industry will require business critical justification for successful Information Technology Management.    

The trend to relate information technology and business savvy is evident in the job market.  A Gartner Group study reports that by the year 2010 six out of ten information technology employees will have business-facing roles.  The need to have a strong business knowledge foundation and education are rapidly becoming requirements in the recruiting of mid to top level information technology positions.  The New Information Technology Department: The three top jobs are Project Management, Relationship Management and Business Analysis.  These position all require strong partnership with the business. Employers are looking for experience that can not come from an individual straight out of college.

The substance of Information Technology Portfolio Management is to measure, manage and control information technology investments.  The terminology and metrics are secondary to the continual evaluation of investments and spending.  The once or twice a year review of budget numbers is no longer sufficient for management of modern day information technology departments.

Coming up in Part 3 of this series, we’ll provide detail on Decision Making Metrics.

Portfolio Management is gaining momentum with the increase in mergers and acquisitions.  In an environment of driving growth, it is vital to large corporations to manage their information technology resources efficiently.  The decision to select one project over ten others is an increasingly complex process.  Every organization has limited resources to complete projects.  Portfolio Management provides standards for decision-making in large organizations.  

Authors Debra Stouffer and Sue Rachlin (2002) describes Portfolio Management as “the consideration of aggregate costs, risks, and returns of all projects within the portfolio, as well as the various tradeoffs amount them.”    This definition continues by including the health of active projects.  The on-going projects are also a consideration in the overall portfolio.  An active project that is not yielding the desired results may be cancelled in order to begin a new effort.

The process of Portfolio Management involves decision-making based on the entire corporate environment.  In order to make the best choices for the corporation, management must evaluate each initiative as it relates to corporate goals and objectives, available resources and project dependencies.  This is a continual process that evolves throughout the budget year.

Context of the Problem

As corporations look for ways to grow and increase profitability, the two considerations are internal and external growth.  Internal growth can be attained by increases in market share.  External growth can be accomplished through mergers, acquisitions or joint ventures.  These acquisitions open new opportunities to share resources and maximize portfolio benefits.  Harold Kerzner, Ph.D., author and expert on Portfolio and Project Management, describes his experience in consulting with rapidly growing companies in his book, ADVANCED PROJECT MANAGEMENT Best Practices on Implementation.

Dr. Kerzner points out that Wall Street appears to be more interested in the near-term value of acquisitions when there are real long-term gains to be achieved.  He states that, “When sufficient time is spent on pre-acquisition decision-making, both firms look at combining process, sharing resources, transferring intellectual property, and the overall management of combined operations”.

Is Portfolio Management the answer to effective information technology utilization in large corporations?   The goal of this research is to examine the methods used in current Portfolio Management practice for decision making in large corporations.  The primary example used for this study will be a large company currently developing a Portfolio Management Prototype.  The following questions will be addressed in resolving this question:

1. What is Information Technology Portfolio Management, and why is it important in todayís business environment?
2. What metrics are used in the implementation of Information Technology Portfolio Management?
3. How does Information Technology Portfolio Management affect the use asset and project planning?

This research will not include Project Management specific best practices or topics.  Only references to Project Managementís relationship to Portfolio Management will be included.  Resource Management will only be discussed as it relates to Portfolio Management.  The focus for this study will be limited to specifically Information Technology Portfolio Management in large corporations with one as the primary example.  Other companies will be used for comparison examples only.

This study has been researched with no bias toward specific Portfolio Management methodologies or company practices.  It is assumed that the company is a typical example of a Portfolio Management implementation.  The timeline and participants from the implementation will be sufficient to collect information for the study.  The interview subjects will have a varied level of experience with the subject matter.

Significance of Study

I have selected this topic for study based on the magnitude of the effect that Portfolio Management provides on the current business environment.  As a Project Manager, the project selection and resource allocation process is of great importance.  Information Technology Executives base budgetary decisions on the viability of the investment.  These decisions are continually evaluated during the evolution of the investment.  A strong understanding of the elements involved in selection and continuation of a project is vital to maintaining a successful project completion rate.  The investigation of Portfolio Management will add value to the experience base of the researcher in a subject area currently considered a high priority to the client company.

Coming up in Part 2 of this series, we’ll look more closely at Portfolio Management and why it is important in today’s business environment.

Welcome to this abstract on effective Portfolio Management.  In the past several years of concentrated efforts managing corporate strategy, I have taken a special interest in managing an effective portfolio.  Today we are going to discuss effective portfolio management and the effect it has on your organizations success. 

IT Portfolio Management is a generic term.  Although, financial portfolios are the most popular, we will not focus on it for this conversation.  Financial information will, however, directly impact the portfolio management we address.  I would also like to add that although Planning and Governance may occur in all sizes of organizations, one size does not fit all for IT Portfolio Management.  A larger company with a large IT department may find more benefit in a single IT Portfolio system than to separate activities like Planning and governance.  Smaller companies may find it more beneficial to create one entity for both functions.

For this purpose, managing an IT Portfolio will include initiatives that are planned and also include support services.  Adding support services and application services is relatively a new practice.  I have found it critical to identifying where all the resources and money are engaged.  And finding where money and resources are engaged is the basis to effective IT Portfolio management.  Portfolio management allows you to measure the success and performance of your current list of work.

First, let’s identify 3 kinds of Portfolio Management. 

1. Application Portfolios – Managing established systems.  Are they still maintaining their value?  Have we merged with other companies and now need to consolidate systems? 
2. Project Portfolios – Maintaining Innovation in your company.  This is my personal favorite.  What is potential ROI and how can we reduce overlaps from re-organization and acquisition.  Creating the tools, process and best practices from one of my earlier discussions on Cultural Adoption will be helpful.  Reporting on clean data will be key.
3. Resource Portfolio Management – Analyzing and forecasting needed talent.  Without this piece it is not possible to execute strategy and be proactive.  This is a critical strategic activity and will enable your organization to identify the workforce needed to be successful in delivering on its strategy while maintaining a proper work-life balance.  Managing a resource portfolio will also control your labor costs, assess your skill needs and help you make more informed business decisions.  This is all part of ensuring your projects have the right people in the right place at the right time AND at the right price and, perhaps more importantly,  re-direct the focus on project success to the most value relative to cost and relative to other potential project investments.
   In contrast to a scorecard, the IT Portfolio provides oversight and control of the budget as one of its goals.  It should be flexible enough to allow organizations to adjust initiatives in any area of the portfolio and at any time.  Break away from an annual plan that is unrealistic and never changes to better align with the corporate direction.

At many of the organizations I have worked at, I have seen what it looks like to not have defined processes for reviewing project requests and proposals.  This is usually a lack of a proper work intake system.  Business area owners submit projects and IT attempts to do more than they have capacity to do.  Many do not see a direct relationship between budgeted dollars and resources.  Indicating that a business area has provided enough money to get the work done, does not correlate to the resources being available or trained up to take on the work load.  As a result there is no visibility to the actual work being done and being approved and they are not actually aligned with the corporate strategy.  Needless to say, this gets quickly out of control and it becomes difficult to visualize that return on the investment.  What investment?!  It is also difficult to build repeatable processes in an environment like this.  Silos are bad and cause much chaos and spend millions of wasted dollars.

So let’s get into the plan and implementation of managing this effective IT Portfolio system. 

Start with aligning and creating a relationship with the business leaders.  Both sides should be committed to making meaningful decisions for the company’s overall IT strategy.  Both should match project intake requests with the company strategic objectives.  The Portfolio Management system should be armed with running IT like a business and constantly monitor which projects are on track, which need help and which should be cut.  This is a hard thing to swallow, but cutting projects where there will be no return or no material return, is vital to the continued success of your IT portfolio!  This means you do not want to sink funds into lost causes, rather re-direct funds to larger pay backs.

Business executives need to have a clear idea of what they are approving and why they are approving it.  Building business cases is the next most important objective to creating your portfolio management system.  Building that relationship with the business will help the business case.  Everyone is on the same page and is lined up with the better good of the company and not out for number 1!

Next, take inventory!  What is everyone working on?  Make it easy and ensure or enforce that it be in a single source.  Match up as many attributes as possible to better identify these projects and create metrics on them in groups.  For large companies this can look like multiple portfolios, one for each business.  As long as one Portfolio Management System/Office is managing all portfolios for IT there should be coordination and agreement.  Another option is to create portfolios for budget, applications, projects and resources.  There are several Portfolio Management Systems (Primavera, CA, Planview, Mercury), so there is no excuse not the submit an RFP and start making life easier!

Training everyone on the activities that have to take place in order for this to be a success is the next key item and the one near and dear to my heart.  Cultural Adoption is critical!  Without trained staff on the metrics/reporting you are looking for to manage this portfolio, your mission will be lost.  You need to know the projects length, status, resources assigned, actual hours and cost spent on work.  You also need to know what’s coming and how to staff it.  Eventually, you can be so good, you will see 3 years into the future!

Next you need to make sure to score your projects.  Many of these portfolio tools will assist you with this scoring.  You have a good inventory and your project managers are entering all the data that you need to identify a full, living inventory, so scoring them should be relatively easy.  It will also better prepare you to identify the projects to kill and the ones to replace them with.  Categorize all projects with the corporate objectives to ensure that relationship with the business partners stays true to the company and does not end up leaning to selfish goals.    This list of projects (execution and new work) is what will be presented to the governing bodies and represent the only list of projects for IT and are scored jointly. 

Finally, be prepared to prioritize!  The whole reason this will succeed is because of the evaluation, cooperation and PRIORITIZATION of all IT projects. 

Now we have just provided business visibility into IT and how those IT initiatives impact our companies.  Everybody will know where the dollars are going and why they are going there and they all agree.  What more can they ask for?  It is what they have been asking for all along.

The benefits out-weigh the cost and effort of implementing an IT Portfolio Management system.  No one will argue that there is a huge advantage to delivering a central oversight of the budget, risk management, a strategic alignment of IT initiatives and in some cases, standards for procedures, rules and plans. 

Good luck in your efforts to roll out effective portfolio management and remember that a little risk management will prevent a lot of fan cleaning!