It may sound like a standard approach to investment, but it’s actually the latest trend to sweep through the CIO’s office: portfolio management.
In essence, portfolio management is software that helps companies evaluate and optimize technology they already have in place or are thinking about buying and installing.
It is often divided into a variety subcategories, such as project portfolio management (which looks at tools that are being evaluated for potential use) and application portfolio management (which helps companies make the most of technology resources they already have on hand). But however it is described or categorized, portfolio management software has gained tremendous popularity of late.
Worth about $15 million today, the portfolio-management market will explode to $400 million by 2008, according to estimates from Forrester Research. “It’s really hot,” says Phil Murphy, a principal analyst at Forrester.
Earlier this year, Meta Group released even more aggressive predictions, saying the portfolio-management tools market will reach $480 million by 2005.
“About 70% of the companies I am working with are doing it,” says Barbara Gomolski, a research vice president at Gartner. “The concept has been extremely popular within the last 18 months.”
It’s no mystery why. After the tech boom of the 1990s — when companies acquired technology more quickly than they could install it — today’s corporate atmosphere is dominated by restricted budgets and skeptical upper management demanding cost justification for all IT activities. CIOs need all the help they can get to keep track of the resources they already have and to wisely spend the limited funds they have for new purchases.
“There was a lot of technology spending in the 1990s,” with Mark Strauch, chief operating officer of Business Engine, a San Francisco software firm that makes portfolio-management tools. “Portfolio management lets CIOs line up all their investments and resources in one place and [decide] what they can do to make the most of the money they’ve already spent.”
Application portfolio management, in particular, can be helpful for CIOs looking to reduce IT maintenance costs to recoup funds for new purchases.
“Folks are being squeezed to do more with what they have,” says Forrester’s Murphy. “It’s a given that most CIOs spend 70% to 80% of their budget on maintenance. How would you like to get 10% to 20% of your budget back? When I ask CIOs that they ask ‘Who do I have to kill?'”
No one, evidently. British bank Abbey National, for example, has claimed a 20% to 30% increase in programmer productivity through the use of portfolio management, according to a report from Forrester.
And results are generally quick, Murphy adds. “The ROI is measured in months, not years,” he says.
Still, as with any technology, portfolio-management systems are not foolproof ways of saving IT dollars. They need to be chosen carefully, installed properly and used diligently.
Gartner’s Gomolski advises that CIOs start by examining their business priorities rather than by choosing software. “It’s really about the process of how to prioritize,” she says, and while the software can automate the mechanics of that, it cannot set corporate priorities. “Start by looking at the governing model for spending decisions” and then look to see what software tools might help, Gomolski says.
Avoiding needlessly intricate portfolio-management systems is another caveat.
“The advice I have for CIOs is to avoid the ‘science-project’ phenomenon,” says Business Engine’s Strauch. “The pursuit of the ultimate in optimal balance may create too much complexity to even install the software tool. Keep it real and keep it simple.”
Finally, CIOs should consider size and cost. Portfolio management systems can cost hundreds of thousands of dollars and so may not be appropriate for firms of all sizes.
“Realistically, the tools tend to be cost-prohibitive for a smaller firm,” says Gomolski. “And it’s not like you can’t succeed without portfolio management.
“But,” she cautions, “I haven’t run into too many companies that do this process inherently well on their own.”