META Report: CIOs Adopt Triggers for Portfolio Management

Overview: Triggers are changes that cause CIOs to re-evaluate their IT portfolio. Defining triggering events simplifies portfolio management through foresight and planning. CIOs seeking to manage IT as a portfolio must determine what events are likely to have enough impact on the IT portfolio to cause a rebalancing of investments to reduce risk, increase value, or both.

META Trend: By 2003, Global 2000 CIOs’ need to enhance enterprise value will increase IT portfolio management usage, with 50% using it as a communication tool, 25% using it sporadically for risk/reward-based decision support, and only 3% employing it consistently to manage the entire enterprise as a single portfolio. Through 2006, these numbers will increase most rapidly in the first and second groups, to 80%+ and 40% respectively, but because of the organizational maturity and discipline required, only 6% will achieve consistent enterprisewide IT portfolio management.

Currently, fewer than 10% of CIOs use trigger- and scenario-based decision activities within a portfolio management (PfM) process. By 2003, 25% of Global 2000 firms will be using IT PfM for risk/reward-based decision support, but because they lack disciplined scenario planning capabilities, fewer than 50% of them will be setting and monitoring triggers to speed the decision process.

As more IT organizations (ITOs) begin using IT PfM (65% by 2004; >80% by 2006), those with mature processes in planning, governance, and program management (<10% of G2000 firms) will deepen their decision process with IT PfM through the use of triggers. Others will continue to develop these IT value management capabilities. Through 2006, IT decision makers, realizing the value of trigger- and scenario-based decision processes, will drive 40% of the G2000 to embrace PfM decision approaches (including the use of triggers).

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Triggers are predetermined events that could have an impact on IT portfolio investment mix. In a stock portfolio, a trigger would be a stock price hitting a predetermined buy or sell point. In IT portfolios, triggers include periodic activities (annual budget review), life-cycle events (desktop refresh cycles), and environmental events (interest rate changes).

What makes an event relevant as a trigger is the potential impact on risk or reward within the IT portfolio. Predetermining actions to be considered when a triggering event occurs prepares leading IT portfolio managers for quick decisions. Once triggers are defined, the ITO monitors the environment for triggering events. When one occurs, portfolio performance is assessed against targets to determine whether acting on the trigger will improve the reward or reduce risks. Rebalancing investments may occur.

Changes, from interest rates to skill availability, affect the possible risks ITOs face (i.e., on projects, within processes, and for asset purchases) or the return achievable (i.e., from a system replacement). When the potential risk or return is significant, savvy CIOs establish measurement thresholds, variances, or limits at which they will consider reacting to the change by rebalancing the investment mix in their IT portfolio. Associating these triggers with actions that may be taken if the threshold is met is an important IT PfM decision-making step.

Triggers are driven by timing, the economy, relationships, and specific business/industry events. But they are mainly determined by the business’s tolerance for risk and desired return levels.

Triggers are set when investments have high associated risks or potential for high returns. Available venture capital may trigger projects and activities to propel one business into new markets, yet cause another in the same industry to make no changes in its portfolio based on risk tolerance or return expectations. Leading CIOs engage in dialog with business executives to clarify trigger significance on business change within risk/reward boundaries for their organization. The process of determining and agreeing on triggers is a great education opportunity for both ITOs and the business and prepares the business for the fact that there are times when action is a given.

Monitoring triggers requires foresight, planning, and drudgery. Some monitoring may be automated through calendar reminders and e-mail alerts from agencies such as those that track interest rates and other economic indicators. However, many, such as changes in skills/staff, processes, application life cycles, or industry/competitor changes, require people to pay attention to specific activities on a regular basis. Organizations with large marketing departments may already monitor market, industry, and competitors regularly. In general, the arduous trigger-monitoring task involves scanning news services, job boards, trade journals, Web sites, and internal measures and comparing current events against a trigger and threshold list on a regular (we recommend weekly) basis.