In the boom years of the late 1990s, many companies fell into the trap of investing in technology for technology’s sake. The subsequent economic downturn, together with tougher regulatory mandates has put new pressure on CIOs to understand the true cost and business value of projects, applications and infrastructure investments.
For many companies, IT investments represent over 50% of capital expenditures. Large scale write-offs of multi-millions in IT investments have led organizations to recognize the dangers of investing in IT without a clear understanding of returns or how those investments will support business objectives.
Executive management, responding to fiscal as well as regulatory pressures, is demanding visibility into the value of every IT dollar spent. However, in reality, most organizations simply don’t have the systems and processes in place to see where the dollars and hours of IT resources are going.
In fact, many IT departments haven’t even recognized that this is a critical step to being able to understand, communicate and manage IT value. Instead, many organizations looked towards project portfolio management (PPM) as “the tool” to solve their credibility, accountability and value measurement issues.
Although PPM has provided business executives with a better view into the value of IT projects, it concentrates only on new investments in the portfolio. PPM tools don’t account for the systems (applications & infrastructure) that the business relies on day in and day out. Projects can represent as little as 25% of the entire IT portfolio, which means that three-quarters of an organization’s IT business is not being monitored, aligned or measured.
Without assessing the current health, status, cost and performance of applications and infrastructure, as well as projects, executive management cannot truly manage the value IT investments create for the business. And the value and ongoing support and maintenance costs of new projects cannot be effectively determined without visibility into existing asset portfolios to understand what impact a new technology initiative might have.
Organizations need to expand governance frameworks to include management of the application and infrastructure portfolios, ensuring that existing technology can be assessed against new projects; avoiding costly errors such as redundancies, inefficient software or labor-intensive projects.
Another critical element is visibility into how resources are deployed across the IT organization, how effectively those resources are being leveraged and allocated as well as the true costs of investments and associated risk. This kind of visibility is only possible through a holistic approach to managing the business of IT.
IT organizations need to adopt business processes and leverage systems that automate core processes throughout the IT organization to provide real-time visibility into accurate performance metrics; metrics that are applied consistently and aligned with corporate and IT governance mandates.
Lastly, organizations need to leverage a holistic view of performance and management for IT portfolio management that enables teams to manage all IT investments as they would a financial portfolio — balancing risk vs. reward for the organization.
IT portfolio management follows a multi-step process to ensure investments are aligned with corporate objectives. These steps include:
To effectively implement IT portfolio management companies require:
IT portfolio management enables organizations to make critical decisions about new investments in projects, applications and infrastructure; accurately assess the business value of these assets by considering the true cost against the business value; determining when enhancements are required to improve the value, performance or reliability or to reduce the risk associated with existing investments; and building and implementing longer enterprise architecture strategies to support the long-term needs of the business.
By leading their organizations to take a holistic approach to IT management as well as portfolio management, CIOs can achieve true alignment of IT investments, increasing the strategic importance of IT to organizational performance.
Chuck Tatham is vice president marketing, IT governance for Compuware, a supplier of portfolio management products for IT. Founded in 1973, Compuware serves the world’s leading IT organizations, including more than 90% of the Fortune 100 companies. Learn more about Compuware at www.compuware.com.