In hard economic times, "getting more from less" is a
common refrain. For IT organizations, the pressure on costs is enormous,
yet high performance is still expected. After wringing performance gains
from IT staff, IT managers are seeking to increase business value by
actively managing their applications and project portfolios. Borrowing
techniques from professional securities investors, IT organizations can
proactively manage and balance their portfolios. They can identify,
evaluate and rank assets and investment opportunities. They can direct
resources to the highest-payback projects. They can optimize the
performance of high-value assets and cull or upgrade weaker ones. They
can target expenditures more effectively to the most worthwhile
initiatives.
This Executive Report examines how IT organizations can actively
manage their application and project portfolios to direct spending to
the highest payback areas, boosting the overall ROI of their portfolios.
Project Portfolio Management
Project portfolio management has its roots in project management and
program management, but extends these familiar concepts to a higher
level. Whereas project management ensures the success of individual
projects and program management ensures the success of large-scale
enterprise efforts, project portfolio management focuses on managing the
gamut of initiatives across the enterprise, both large and small, to
generate the greatest overall return on all corporate
investments.
Project portfolio management gives executives the tools, processes
and disciplines to make more effective project investment decisions,
monitor and balance risks, better prioritize and direct projects and
resources, and reduce overall expenses. It ensures that:
- the right mix of projects are in the portfolio to maximize overall
returns;
- the risks posed by those projects are not too heavily weighted
toward one extreme or another (conservative versus speculative);
- resources are allocated optimally across those projects;
- problems are corrected before they become major issues;
- projects remain aligned with business goals throughout their
execution; and
- projects receive the support and oversight needed to complete
successfully.
Four Steps for Managing a Project Portfolio
At heart, project portfolio management is concerned with
effectiveness -- choosing the right projects -- and efficiency --
helping them succeed. To achieve these goals, executives follow these
four fundamental steps.
Step One: Lay the Groundwork
Before launching into project portfolio management, a company must
lay the groundwork with three important building blocks. First, to aid
project evaluation, prioritization and selection, a single repository of
enterprise-wide project information is required. Second, to give
executives real-time insight into his project data, reporting
capabilities are needed. Third, to populate the repository and guide the
portfolio review and analysis, standard processes are established.
Step Two: Select the Right Projects
Every company has a pipeline of project requests and a finite amount
of resources to devote to these projects, placing a premium on selecting
the "right" projects for execution and making sure that they
succeed. Executives must determine the value of the projects in the
portfolio, analyze their risks, categorize projects by value and risk,
select projects that will maximize portfolio returns, optimize the
timing and order of projects, determine the optimal sourcing strategy
for each project, resolve conflicts among projects and address projects
that do not pass the screen.
Step Three: Keep Projects Aligned With Business Objectives
Projects are initially selected because they advance corporate
objectives. Over time, however, projects can stray from their original
plans. Business strategies likewise shift and evolve, leaving originally
well-conceived and aligned projects adrift. Detecting and correcting
misaligned projects at the earliest opportunity is crucial to protect
investments.
Step Four: Help Projects Execute Successfully
When only a small percentage of projects can be selected for
execution, it is especially important that they succeed. Project
portfolio management provides executive-level support and oversight
needed to bring projects to successful completion while leaving tactical
day-to-day execution issues to project managers. Executives review and
resolve issues, monitor spending, correct overlaps, balance resources,
order the timing of projects and provide course correction when
misalignment occurs.
Application Portfolio Management
As with a portfolio of projects or stocks, an IT organization can
actively manage its portfolio of application assets to extract the
greatest returns from, and minimize the associated costs of, individual
applications.
The potential benefits and costs of an application varies depending
on what it does and where it is in its lifecycle. As an application
ages, its costs and benefits advance and decline in predictable ways,
affecting its overall value to the business. During the development
phase, an application generates no benefits but its costs peak due to
investments in software licenses, labor, supporting hardware and
equipment, and deployment and training. When an application moves into
production, benefits peak and costs decline precipitously. As the
application approaches the end of its life, benefits begin to decline,
and maintenance and support costs rise.
These predictable benefit and cost patterns shape the types of
strategies available at each lifecycle stage to boost application ROI
and reduce costs,
Three Steps for Managing an Application Portfolio
Practicing application portfolio management means having a strategy
for every application that extends across its lifecycle and takes into
account its changing benefits and costs. Just as a stock investor comes
up with a set of buy, hold and sell decisions to maximize the value of a
stock portfolio, IT managers will determine similar buy, hold and sell
strategies for their applications as a way to maximize the ROI of the
portfolio.
Step One: Create an Application Inventory
A prerequisite to performing application portfolio management is a
comprehensive application inventory. Basic application-specific
information such as application name, functional description, primary
technologies, business owner, etc. is added to a repository.
Step Two: Assess the Application Portfolio
Supplemental information is added to the application inventory to
will support investment analyses of the applications. The state of the
applications within the portfolio is analyzed to understand their
condition, quantify their operational and support costs and measure
their value to the business. At a minimum, data should be gathered
measuring user satisfaction, application lifecycle position, risk
factors, strategic value, functional quality and technical quality.
Step Three: Optimize the Portfolio
The third step is to use the application inventory and assessment
data to create and execute targeted action plans to improve the overall
value of the portfolio. These plans include strategies for
under-performing, value-adding and borderline application assets, which
will vary according to the lifecycle position of an application. For
applications in development, strategies tend to focus on gaining
benefits sooner, laying the groundwork to keep future application
maintenance and support costs down, implementing functions to heighten
the amount of benefits eventually delivered, and controlling development
and deployment expenses. For production applications, efforts
concentrate on improving the benefit-to-cost ratio by making
enhancements to enlarge benefits, reducing operational costs or both.
For applications at the end of their lives, strategies seek to
rationalize continuing investments by prolonging the lives of
beneficial, but ailing, applications, salvaging useful functionality or
redirecting funds spent on marginal performers.
Taking their cue from stock investors, IT managers should embrace
active portfolio management as a proven strategy to boost business
benefits, balance risks and cut costs. More than a panacea for hard
times, application and project portfolio management can maximize the ROI
of application and project investments by targeting resources to areas
that provide the highest payback while eliminating unnecessary costs
that drag down portfolio ROI.
