Meta Report: Portfolio Management Helps Manage Through Uncertainty

By Meta Group Staff

Situation Analysis: The economic boom-and-bust roller coaster of the
past three years has been a sharp reminder to business and IT executives
about the need for level-headed management and clear vision. During the late
1990s and the first half of 2000, it was a difficult challenge to keep
business expectations and spending at realistic levels. When the economic
tide changed, the challenge was to ensure that cost control actions were
pragmatic (vs. irrational cuts in core business and IT capabilities).

During this tumultuous period, assessing and communicating the value of IT
investments has been a constant “reality check” that has enabled managers to
resist the siren songs of excessive optimism or across-the-board pessimism.
To maximize the reach and benefits of this management discipline, which
combines the mathematical purity of statistical analysis with business
knowledge and intuition, many leading enterprises have followed the example
of the financial industry and applied portfolio management disciplines to
business and IT investments.

A business’s portfolio of investments may include the following: business
units or departments; business activities and processes; knowledge capital
(e.g., patents, in-process R&D); physical assets (e.g., buildings, product
and part inventories); financial flows and accounts; and human capital
(i.e., people).

For IT groups, the portfolio may include hardware (e.g., servers, storage,
desktops, networks, mobile devices), software (e.g., applications,
databases, operating systems), information/data, processes, budgets, and
people. For both business and IT groups, projects are also a key part of the
portfolio, because these investments define how different assets within the
portfolio will evolve.

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Understanding asset attributes is relatively straightforward in the case of
IT hardware, which has qualities such as purchase price, maintenance cost,
depreciation algorithm, and residual value. Software typically involves
licensing fees as well as ongoing maintenance costs. Processes, budgets, and
people are areas where more sophisticated attributes are often required.
Project attributes include deliverables, timetables, milestones, resource
projections, and overall budgets.

A key challenge has been deciding to what extent portfolio management
techniques should be applied. For some organizations, simply categorizing IT
investments and using portfolios as a communication tool is sufficient.
Others have benefited from applying detailed statistical and management
processes to their IT and business investment choices. The need to assess
the degree of portfolio management discipline and detail that is appropriate
for particular organizations has spurred the creation of META Group’s model
for business and IT portfolio management.