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IT Portfolio Management
An overview discussing the theory of Portfolio Management as it applies to a firm’s Information Technology needs and available resources.
Sebastian Gawenda12/3/2008
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Table of Contents
Overview…………………………………………………………………………...3
IT Portfolio Management…………………………………………………………..5
The Three Prongs of IT Portfolio Management……………………………………9
Application Portfolio Management……………………………………..9
Project Portfolio Management………………………………………….9
Resource Portfolio Management………………………………………10
IT Portfolio Management in Practice
State Farm Insurance Companies……………………………………...11
Motorola Corporation...……………………………………………….13
Alternatives………………………………………………………………………..15
Bibliography………………………………………………………………………16
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Overview
Portfolio Management on its own is not a novel idea. It has existed for a long time
in the financial services industry. There the idea is quite simple and directly relates to the goal of
IT Portfolio Management. The idea of portfolio management is to balance the risks of investing
with finite resources while also producing the highest yields possible. It can be difficult to
consider the IT world in the same way as that of the financial world; after all, there are no stocks,
bonds, or currencies.
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The main idea of portfolio management to take away from financial services is that
of balancing projects with one another. That is what portfolio management as applied to financial
services focuses on. Some money should be invested in projects that have a relatively low level
of risk associated with them, those where the outcomes are fairly assured. While these projects
will typically be ones where the level of measureable return is fairly low, their level of assurance
in providing those results is what makes them attractive. Further, a certain level of higher risk
projects should also be undertaken to provide for a way in which the firm is able to grow. This
certain level is dependent on the maturity level of the firm. It may be more focused on growth
than a firm which has been in the industry for several decades.
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IT Portfolio Management
As previously discussed, IT Portfolio Management really focuses on utilizing
current resources in such a way as to derive maximum value through the ongoing evaluation,
optimization, and selection of projects while cutting down on redundancies whenever possible
(See Figure 1.)
What the focus of the IT Portfolio is going to be is decided just as it would be in the
financial services industry. There the goals of the client would be reflected in the investment
strategy and decisions of the portfolio. Similarly, the mission and overall goals of the company
will be the key driving factors behind the project selection process for the company. In a research
report published in September of 2004, Defining IT Portfolio Management, Forrester Research,
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Inc also names several significant factors to be understood before the creation of the IT
Portfolio’s plan.
Relevant business factors.
Because the factors being gathered here are business related, traditional analyses
will suffice for this portion of the gathering. This includes information gathered from such
traditional model’s as Michael Porter’s Five Forces Model, the balanced scorecard method
developed by Robert Kaplan and David Norton, strategy maps, and other relevant performance
indicators. This business factor information is gathered to aid in understanding the functions of
the business process that are most key to the successful operation of the enterprise.
Relevant IT factors.
The traditional analyses that were utilized for the previous section will not work
ideally to identify the IT factors of greatest importance. These factors are generally the same
across industries and include the limited nature of available resources, complexity and capability
of the infrastructure, and the experience and skill of the IT administrators.
The key value proposition for the overall IT portfolio.
As discussed previously, just as different clients require different results from their
portfolios; different firms will require the IT to fulfill different needs. Depending on the industry
sector the company operates in, the IT capabilities will either be a primary function of the firm or
most likely serve a secondary, support function.
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Prioritization.
Having gathered all of the information, prioritization of the goals at this juncture is
appropriate. A preliminary assessment is possible to begin the difficult task of deciding which
projects will best suit the needs of the organization, and delaying those that are redundant and
don’t provide a benefit that is in line with the organizational strategy. A sample breakdown of
possible IT projects and how they fit with the firm is presented in the illustrations below (Figures
3 and 4.)
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The Three Prongs of IT Portfolio Management
The IT Portfolio Management process is composed of three prongs that work
uniformly to balance the needs of the company with the available resources. These three prongs
are: Project Portfolio Management, Application Portfolio Management, and Resource Portfolio
Management (IT Asset Management and Infrastructure Management).
Project Portfolio Management directs those projects that are currently under way, or
are about to be underway. These are projects that still have the opportunity to be augmented, or
those where it is important to manage the direction of the project. A lot of the benefits of IT
Portfolio Management are derived from this stage because this is where many redundancies are
reduced or eliminated.
With the categorization and classification of projects at this stage, it is much easier
for companies to utilize the software and analytical tools at their disposal to make more
strategically aligned decisions. Further, these projects should now have the appropriate level of
resources and adequately skilled staff assigned to them.
Application Portfolio Management is the portion that focuses on creating the visible
connections between current projects and the current costs and business processes connected to
them. These connections lead the way for the organization to be able to arrive at future decisions
with a better understanding as to how they will impact their strategy, business process, and
business value.
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Also due to the increase in visibility, decisions regarding the prioritization of critical
applications will be easier to make because the ties of each application will be better understood.
These prioritizations will also lead to cost savings that arise from the reduction in redundancies.
With the ability to find critical services and process will come the capability to group the
resource-draining redundant applications together and limit their drain on the firm.
IT Asset Management, otherwise known as Resource Portfolio Management, will
create a similar connection to that of Application Portfolio Management, but it will build the
bridge between IT’s resources and IT’s obligations. The term obligations is a broad-spectrum
term that is used to encompass not only the contracted responsibilities of the IT department but
also its other affiliated costs like maintenance depreciation schedules.
With a better understanding of the IT assets at hand, the company can both reduce
risks and increase utilization. Digital rights protection and piracy are becoming ever increasing
concerns for companies and IT Asset Management helps to alleviate those worries. Thanks to a
more focused awareness of the available capital, firms are better able to track their software
licensing and usage to avoid any unnecessary penalties and fines. The increased resource
awareness will also aid in the ability to utilize available programs and power to their capacity.
What may have appeared as a capability shortage before the evaluation may prove to be a
capacity surplus afterwards.
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IT Portfolio Management in Practice
State Farm Insurance Companies
State Farm Insurance Company is one of many firms that practice IT Portfolio
Management. It is incredibly important for it to systematically manage and utilize its
technological resources in a coherent and logical manner due to the vast amount of information
that it analyzes. State Farm manages a database that stores roughly four times the information
available in the Library of Congress, the world’s largest library. With such a large amount of
information on hand, control over IT must be tight to mitigate redundancies that may slow the
performance of the firm. It also operates in one of the world’s largest and most extensive private
networks, and provides network access not only to corporate employees but to thousands of
agents across the globe.
The firm places a big emphasis on pairing the strategy and goals of the entire
organization with the benefits sought from its IT portfolio. Developing and understanding its
business strategy and imperatives is a first step for State Farm, one that paves the road for IT
Portfolio Management. From there, the company develops projects that will lead them toward
their goals and identifies opportunities where IT is able to bridge the gap from planning to
performance.
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State Farm also utilizes capability maturity models to a great extent. These models
aid the company in understanding the positioning of their business processes so that they can
better identify opportunities for their IT services. The capability models are divided into three
progressively more detailed levels. The focus of the levels is investment decisions, the customer,
and expense management.
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Motorola Corporation
The Motorola Corporation is similarly an industry leader with vast capital at stake in
daily business operations. It too must carefully balance its IT portfolio to manage risks with the
need to grow and provide newer and better services to its customers. Motorola achieves this goal
through the use of M-Gates.
M-Gates is a decision making framework that allows decisions and projects to be
considered under a standard set of criteria. The framework has been used by both the
Engineering and IT departments since its rollout in 1999. It consists of four gates: M15 – M14
High Level Business Case, M14 Request Review, M13 Detailed Business Case, M13 Business
Case Review.
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The M15 – M14 High-Level Business Case Gate has a focus of translating the
developed business strategies into sources of IT deliverables. A general review is then conducted
and a decision is made as to whether proceed with the preliminary project or to cancel it.
The M14 Request Review Gate is a junction where the governance board of the
company reviews the proposal and decides if it should go forward with the project. The board
considers the other initiatives that are forming at the same time and makes a decision so as to
best eliminate redundancies. If the project is allowed to continue, a business case team is
identified and assigned that will be responsible for the further development of the assignment.
The M13 Detailed Business Case Gate is where the majority of detail and analysis
oriented work is completed. Here a detailed case or plan is structured for the project that includes
all of the necessary inter and outer company document requests and approvals.
The M13 Business Case Review Gate is the final check-point. The governance body
will once again deliberate over the project and decide whether it will give the necessary
permission for the implementation of the project or whether it will reject the project. This is the
final control before the possible commencement of the endeavor; risks and rewards as they relate
to the strategy and market position of the firm weight in heavily at this gate.
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Alternatives
There are alternatives to the IT Portfolio Management method, but many include the
basic elements of classification, organization, and strategy alignment that are the keys to a
successful IT portfolio management strategy.
The most notable of these alternatives is the Balanced Scorecard method. A
performance management tool that was developed by Robert Kaplan and David Norton, it too
places great importance on the vision and strategy of the organization that uses it. The Balanced
Scorecard exists to provide a thorough view of the business that includes not just financially
originated measures, but those measures that do not provide a specific numeric benchmark.
A notable difference of the Balanced Scorecard from IT Portfolio Management is that the
scorecard is best suited for single project evaluation while portfolio management is built to
manage multiple projects. Portfolio management also expresses more interest in reducing
possible redundancies that may exist within the portfolio, something that is not a major priority
of the scorecard.
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Bibliography
Datz, Tom. "Portfolio Management Done Right.". CIO.com. November 16, 2008. <http://www.cio.com/article/31864/Portfolio_Management_Done_Right>.
Gliedman, Chip. "Defining IT Portfolio Management". Forrester. Best Practices. September 29, 2004.
Handler, Robert and Maizlish, Bryan. IT Portfolio Management. Step-By-Step. Hoboken: John Wiley & Sons, Inc., 2005.
Manka, Dina and Ollinger, Debbie. “IT Governance at Motorola.” Wohler’s Hall: Champaign, IL. October 1, 2008.
Steinman, Melissa. “State Farm Insurance Companies – Portfolio Management.” Wohler’s Hall: Champaign, IL. September 24, 208.