As 2004 draws to a close, now is the time to put into practice the lessons learned over the past few years to demonstrate IT’s value during ’05’s budget negotiations.
To do this, most CIOs will be using portfolio management techniques to help them prioritize initiatives, justify decision-making, measure risk vs. return, and allocate resources in a way that maximizes their impact upon the business.
A recent survey found that nearly half of CIOs use a portfolio management approach to IT projects. Industry-leading companies with a focus on best practices recognize that by coupling portfolio management activities with their enterprise architecture (EA) efforts, they can gain visibility into a wide range of insights that is otherwise missing.
These can be hidden costs, direct and indirect benefits, requirements (capital, functional, human), process capabilities, performance, time-to-market schedules, trade-off implications, standards and quality compliance, feasibility, etc.
The process of managing the IT portfolio is ultimately about determining the strategic direction in which the IT department is headed.
As such, it’s the office of the CIO that is the ultimate portfolio manager, and the IT department that needs to be responsible for making sure that investments are in line with overall business strategy.
Keep in mind, however, that the CIO doesn’t have sole budgetary control over every IT expenditure. Projects may be initiated and ultimately funded by the business units for which they are intended or by an IT investment committee comprised of the CIO, line-of-business sponsors, and representatives of the CFO.
This means that senior IT leaders need to work with other stakeholders from the business to develop business cases and secure funding. A well-balanced portfolio that is grounded in architectural reality can play a crucial role here.
One of the key advantages is that it can help participants at the negotiating table to separate the map from the territory and safeguard against funding determinations that may be short-sighted or that may be driven by the individual that wields the largest proverbial hammer.
One primary advantage of utilizing a portfolio approach is that it provides a single view into diverse IT initiatives. Such an aggregated view typically encompasses the following categories, although a different or further stratification can occur depending upon the organization:
In this manner, CIOs and their extended team are able to view aggregated cross-sections of information about the state of their IT investments for holistic decision-making.
So, for example, the CIO could thereby quickly assess all the instances where a particular vendor’s solutions were slated for use across the year’s remaining projects in order to ultimately strengthen purchasing leverage.
As a best-practice precursor to this type of strategic planning, a baseline assessment of existing IT resources needs to be in place.
The first activity is to identify a current enterprise model that describes the organization’s “as-is” state. Since this enterprise model contains the complete set of artifacts enumerated in the categories bulleted above, it helps to construct the portfolio.
This baseline assessment is not to be confused with an asset inventory that would be assembled for the purposes of managing an asset’s lifecycle from procurement to retirement.
An inventory, although useful, has limitations in this case. First, the baseline assessment is intended to assess the level of fit between a company’s business requirements and its IT investment mix. An asset inventory, by design, will not produce this kind of insight. It would be insensible to base a go/kill decision for a project on a rank list of assets.
Second, the asset inventory doesn’t take into account the majority of the aforementioned categories, for instance, processes. The vast store of information that is needed to conduct such an analysis is better derived from the enterprise model as it describes the allocation of the full range of categories in relation to the business objectives that they support and the critical interdependencies that exist between them.
The portfolio, especially when supported by enterprise architectural review, can be used to eliminate any entrenched biases and objectively demonstrate how IT plans to align to the business — and how it arrived at its conclusions.
The portfolio, which represents facts not fiction, means that IT can’t be accused of “voodoo economics” and business units can make intelligent concessions according to the dictates of a level playing field.
At the end of the day, both sides need to come together to prioritize and allocate IT spend in a manner that benefits the corporation as a whole, and an EA-backed portfolio can help foster the credible dialogue that is necessary to do that.
Faisal Hoque is the CEO of Enamics, and the author of The Alignment Effect, which advances the theory of business/technology management (BTM). His articles have also appeared in The Wall Street Journal, The Economist, and Best’s Review.