AVO Chief

Your Company Needs Portfolio Management if…

• Million-dollar projects, which may or may not match the company’s objectives, are being awarded to business units headed by the squeakiest executives
• Your company currently has weak IT governance structures which means that business executives don’t have clear ideas of what they’re approving and why
• The CIO ends up selling projects that should be generated and sold by line-of-business heads
• If the company doesn’t build good business cases for IT projects or it doesn’t do them at all; and there are redundant projects.

A strong portfolio management program can turn all that around and do the following:

• Maximize value of IT investments while minimizing the risk
• Improve communication and alignment between IS and business leaders
• Encourage business leaders to think “team,” not “me,” and to take responsibility for projects
• Allow planners to schedule resources more efficiently
• Reduce the number of redundant projects and make it easier to kill projects

There’s no single right way to do IT portfolio management. Vendors, consulting companies and academics offer many models, and often companies develop their own methodologies. Off-the-shelf software is available from a variety of vendors such as CA Clarity PPM and HP PPM to name a few. But there are plenty of hurdles to doing it well. There are, however, some key logical steps that should be considered.

Here are the key steps in creating and managing your IT investment portfolio.

1.  Gather: Do a Project Inventory

Portfolio management begins with gathering a detailed inventory of all the projects in your company, ideally in a single database, including name, length, estimated cost, business objective, ROI and business benefits. Usually, the first task of program management is getting control of project portfolio activities. That means creating an inventory, put that into a master project schedule, gain an understanding of the resource requirements of all the projects, then do a reconciliation of the projects and reduce the schedule to a manageable level.

Creating a project portfolio inventory can be painstaking but is well worth the effort. For many companies, it may be their first holistic view of the entire IT portfolio and any redundancies. A good inventory is the foundation for developing the projects that best meet strategic objectives.

2.  Evaluate: Identify Projects That Match Strategic  Objectives

The next steps involve establishing a portfolio process.

• The heads of business units, in conjunction with the senior IT leaders in each of those units, compile a list of projects during the annual planning cycle and support them with good business cases that show estimated costs, ROI, business benefit and risk assessment.
• The leadership team vets those projects and sifts out the ones with questionable business value.
• Next, a senior-level IT steering committee made up of business unit heads, IT leaders and perhaps other senior executives meets to review the project proposals; a good governance structure is central to making this work.

One of the core criteria for which projects get funded is how closely a project meets a company’s strategic objectives for the upcoming year. At some companies, an executive leadership team will create five or so strategic initiatives, such as CRM for example. The IT governance council, made up of business leaders and senior IT leaders, then evaluates projects based on how well they map against those initiatives. Other evaluation factors can be based on risk, change management, resources, etc. We suggest using a methodology like the AVO method that borrowed from the product development arena.  In the end projects that are placed above the line are those that should be funded. Those that are below the line are those that shouldn’t.

Some project portfolio review boards also evaluate one-page project opportunity assessment for every proposal. A good evaluation process can help companies detect overlapping project proposals up front, cut off projects with poor business cases earlier, and strengthen alignment between IS and business execs.

3.  Prioritize: Score and Categorize Your Projects

After evaluating projects, most companies will still have more than they can actually fund. The beauty of portfolio management is that ultimately, the prioritization process will allow you to fund the projects that most closely align with your company’s strategic objectives.

Some companies may like their projects to be pooled together as like projects. For example, some groups may be:

• Large technology projects
• Small technology projects
• Infrastructure technology projects,
• Possibly one covering executive initiatives.

In the case of the large tech portfolio, its management team made up of project sponsors, function managers (for example, representatives from engineering, financial services and operations) and product portfolio managers (people with long-term project leadership responsibilities) vet projects and come up with a list of a specified number of projects for the portfolio team to score. They then prioritized them using a model that has four key tenets:

• Identify four to seven strategies. (for example, limiting technology risk, increasing the reliability of the infrastructure).
• Decide on one criterion per strategy. For example, the team can decide that the criterion for limiting technology risk would be whether the technology had been implemented in a comparable organization and that the benefits could be translated to their organization easily.
• Weigh the criteria.
• Keep the scoring scale simple. For example you can use a scale of one to five. For the technology risk strategy, five might mean that it has been used in a comparable organization and the benefits could be transferred easily; three could mean it’s hard to do because it would require changing processes; one might mean they haven’t seen it work anywhere else.

Following the scoring, the team can draw a line based on how many projects it could do with existing resources.

In the case of the large technology portfolio, the line can be calculated where demand (the list of projects) meets supply. Those projects above the line could be done in that year. The team then can present that list to the committee or council, which can approved it that same day instead of , weeks.

There is no one method to categorize your IT investment portfolio. One approach is to categorize it as you would your own financial portfolio, balancing riskier, higher reward strategic investments with safer categories, such as infrastructure. One suggestion is to divide a portfolio into three investment categories:

• Running (keeping the lights on),
• Growing (supporting organic growth) and
• Transforming the business (finding new ways of doing business using technology).

Those categories can then be cross-tabulated with four to five value-focused categories, such as how those investments support revenue growth, reduce costs or grow market share.

The payoffs that come from a thorough evaluation and prioritization process is the primary reason portfolio management is so effective. Here is list of the some of the benefits:

1.       First, communication between IS and business leaders improves. And portfolio management gives business leaders a valuable, newfound skill – the ability to understand how IT initiatives impact their companies.

2.       Second, business leaders think “team,” not “me,” and take responsibility for projects. One tried-and-true method for how a business leader got money for his unit’s projects was to scream louder than everyone else. Portfolio management throws that practice out the corner office window; decisions are made based on the best interests of the company.

3.       Third, portfolio management gives business leaders responsibility for IT projects. So the businesspeople propose the projects and [take responsibility] for risk profiling, ongoing operational costs and timeliness of delivery.”

Finally, everybody knows where the dollars are flowing and why, which is especially important to CEOs, CFOs and CIOs who are increasingly demanding that technology investments deliver value and support strategic objectives.

4. Review: Actively Manage Your Portfolio

The portfolio must be actively managed following approval of the project list. Doing that involves monitoring projects at frequent intervals, at least quarterly. At many companies a PMO that reports directly to the CIO has that responsibility. Once or twice a month, the project management office gets financial and work progress perspective updates from project leaders. That information goes into a database, and the CIO reports to the entire company monthly, giving the project inventory and its status. He assigns project status:

• Green (good)
• Yellow (caution)
• Red (help!)

He also includes an explanation of the key driver causing a yellow or red condition. The IT steering committee meets once a month to make decisions to continue or stop initiatives, assess funding levels and resolve resource issues.

Frequent reviews allow the committee to redirect resources more quickly. Monitoring project portfolios regularly also means projects that have run off the rails can be killed more easily. For example, if there’s a strategy decision to focus on a certain ERP like SAP, then it makes sense to cancel a new system that interfaces with PeopleSoft.