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IT Portfolio Management –State of Industry Practice Report

Blog: Brian's Blog - Enterprise Strategy, Architecture and Management

This must be the year of the Portfolio tool suites. Interesting to see all the hype around IT Portfolio Management currently. When I dig into the materials and tools the past several months: Nothing new that you couldn’t do with a spreadsheet and have. The unfortunate thing is that the current state of industry practice is still around stack-ranking around perceived ROI and using budget target as a cutoff point for approved projects.

Yes, sure there are now project and application profile databases that allow you to capture descriptive information about the project or application, and categorize these. However, when you dig under the covers of these tools, it’s still plain old ROI stack ranking.

Maybe it that that’s all that current organizations can or wants to handle as far as investment decision making. Given the other hundreds of things that are on management’s plate. Considering that many technology decision-makers handover their own personal financial investment decisions to brokers and financial advisors, its small wonder that they would pick the simplest and quickest decision criteria.

Often when I discuss such topics I hear dismissive statements like “Academic”, “Analysis Paralysis”, or “Over-analysis”. Yet in the same corporation its field staff recommend and spent hours with clients analyzing various factors to make sound recommendations [some even use the methodologies and tools I’ve developed for this purpose].

A small, not uncommon scenario in industry today

In a previous project, I observed that at every opportunity decision-makers voted to remove objective evaluation factors or transform these factors into subjective ratings (wet finger in the air directional estimates) that the initiative sponsor would give and no one at the table would challenge. Groupthink or old-boys behind the scene dealing? In either event the portfolio management process eventually became a story-telling session to report up the chain on how great or critical the projects they were proposing are.

The process and approach were eventually closed out as it didn’t yield the results that either management or executive management wanted. –Small wonder given the only thing left of actual process was the title—And the management team went back to the way they always did it: project popularity and ROI hurdles based upon investment SWAGs that everyone knew were drastically off by several orders of magnitude. To be fair management was only following the lead of the executive they reported to, who was purported to focused on “just doing something”.

I point out the above as example of state of industry and why such practices persist.

Results from the field

However, that don’t mean there aren’t others that have matured in their decision processes and are achieving better than average results. Several statements have been made regarding the difference between number one and two in the industry and all the others. Reports suggest performance of number one and two are only about two to five percent better, they results from these year after year result in margins and market share of thirty percent or better while number three and lower are struggling to maintain five or ten percent.

A few things to clear up regarding IT Portfolio Management practices.

Imho, most are just inventory process and systems using discounted cashflow on guesstimates for valuation. Very few take a critical eye towards the value produced to the enterprise or the risks associated with such investments. Does this sound very financial advisor-ish? It should as that’s the domain where this all came from. The issue arises in that only part of the portfolio management equation has been used in IT Portfolios and other Enterprise portfolios. The entire risk side of the equation and other potential benefits has been dropped.
Portfolio Management is about balancing Risk and Reward
Portfolio Management results have a long tail; that is the improvement year after year compounds. It’s not market timing Big Bang / Big Bust or take a chance lotto

Several decades ago Parker & Benson proposed an investment decision framework in a modest book called Information Economics. In it what now is called a balanced scorecard approach was used to evaluate multiple factors for technology investments. I believe it was a watershed moment in that a framework for rational investment for the enterprise’s benefit was introduced. The framework embraced the concepts of a balanced portfolio the Markowitz (the economist who won the Noble Prize in Economic for developing Portfolio Management).

At present, it’s difficult to determine IT portfolio performance, as there is not an industry analysis firm gathering data on such or a benchmark yet (stay tuned). The only statistics I’ve found in this arena so far has been around IT spend or IT spend as percentage of enterprise revenue. However, the quick survey I’ve conducted over the years points to those that manage IT Investment beyond just ROI have better enterprise performance vs. IT performance year after year.

During this current year I hope to complete both my Modern Portfolio Management White Paper and Tool Suite with the support of my employer. The objective I have for both is a system that enables one to start from the basics then as time, resources, and cost/benefit determine raise themselves to the next maturity level of practice.

For those interested in this approach reach out to me either through my employer or directly via LinkedIn

Filed under: Portfolio Management