It Portfolio Planning - Long-term View Short-term Results Vfinalc

IT Portfolio Planning: A Long-Term View for Short-Term Results

The ad-hoc approach to Information Technology (IT) planning most commonly taken by enterprises, while somewhat effective in normal market conditions, becomes a critical barrier to success in tough economic times. A proven, more balanced ‘portfolio planning’ approach will deliver superior results, in both good times and bad. This white paper describes the strategies and processes required to establish a portfolio management discipline in your organization.

Introduction Companies have traditionally managed IT in an ad hoc fashion. As business needs arise or are recognized, IT is called upon to respond to them. Operational processes are then put in place to support the systems born of these needs. The resulting ‘Frankenstein’ IT organization works initially but eventually falls into a spiral of diminishing value as disjointed staff and technologies become increasingly expensive and difficult to maintain. This is a common enough problem and one easily rectified though the application of focussed effort in a few key areas. IT portfolio planning is one of these best practice disciplines. Portfolio planning will help organizations transform IT into a key business asset and an enabler of the company’s business plans and goals over the short, medium, and long term.

The Status Quo IT functions in mid-sized firms generally develop organically over time in tandem with the organization’s growth. At first, essential services are brought online and users are provided with the basic tools to do their jobs. As a company’s technology needs increase, and more sophisticated mission critical systems are implemented, some or all of the following problems arise: • Rising IT costs without additional benefits • Increased frequency and severity of system failures resulting in lost productivity and revenue • Inability or great difficulty in connecting systems together • Data loss These experiences are not isolated. IT is quickly becoming the black sheep of the corporate family. Research into the effectiveness of IT, performed over the past several years, has uncovered the following alarming statistics: • “20 percent of all expenditures on IT is wasted—a finding that represents, on a global basis, an annual destruction of value totalling about US $600 billion”1 • “A survey of Fortune 1000 CIOs found that CIOs, on average, believe that 40 percent of their IT spending brought no return to their organizations” 2 • Only 15% of 452 organizations surveyed are getting aboveaverage returns on their IT investment. The majority are gaining no competitive advantage, with the remaining 11% spending 13% above average on IT while getting 14% lower returns3 A better, more rational and proven approach to planning that will ensure IT value-add is desperately needed.

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Before we get into the details of portfolio planning we need to briefly examine one of the prerequisites to implementing a successful IT portfolio; the IT governance function.

Theory in Practice: IT Governance Establish an IT Governance board

IT Governance: A Prerequisite Information technology governance is a commonly misunderstood facet of corporate management. Most managers would define it as a set of controls ensuring IT is used within a specific set of boundaries. These can include legal, financial, security and data privacy considerations. They would go on to say that governance mechanisms ensure that regulatory requirements such as those identified in the Sarbanes-Oxley Act (SOX) are met. The COBIT framework (Control OBjectives for Information and related Technology), for example, is used widely by companies listed on U.S. stock exchanges to ensure IT-level SOX compliance. Most executives view ‘governance’ through the eyes of an accountant or auditor. The reason for this is evident. Corporate governance best practices and requirements rose from the ashes of failures such as Enron and WorldCom. Although the COBIT framework had been around since 1996, it only became prominent in 2002 when the Sarbanes-Oxley Act was passed into law.

Use your business strategy to identify the type of governance structure you should put in place

While IT governance covers the above audit and control functions, it’s scope should be more extensive than that. The following definition says it best. IT governance;

“...specifies the decision rights and accountability framework to encourage desirable behaviour in using IT.” 4 In order to develop the right portfolio of IT investments, the goals of the organization need to first be examined. Table 15 describes three different governance strategies and their linkage to business goals. The left-most column, “Profit”, indicates the strategies which companies focussed primarily on delivering profits to shareholders should adopt. Don’t all companies desire to be profitable? Most companies, not including funded start-ups which are often purely growthfocussed, do. This column, however, is most pertinent to

The portfolioʼs performance varies based on the chosen governance model PROFIT Strategic Driver

Profitability via enterprise-wide integration and focus on core competencies

ASSET UTILIZATION Efficient operation by encouraging sharing and re-use

ROI/ROE and business process costs

Key Metrics

Key IT Governance Mechanisms

• • • •

Executive committee Architectural process Capital approval Tracking the business-value of IT

IT Infrastructure

Layers of centrally mandated shared services

ROA and unit IT costs

• • • •

Business/IT relationship manager Process teams with IT members SLA and chargeback IT leadership decision-making body

Shared services centrally coordinated

GROWTH Encourage business unit innovation with few mandated processes

Revenue growth

• Budget approval and risk management • Local accountability • Portals or other information services / sources Local customized capability with few required shared services

More centralized

Blended

More decentralized

E.g. Monarchies and Federal

E.g. Federal and Duopoly

E.g. Feudal arrangements; risk management emphasis

Governance

Table 1 - IT governance strategies

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companies willing to forgo growth in the search for greater profits. They will turn down business that would result in a high sales volume but which, while delivering high top-end growth, will deliver little net profit. The far-right column describes a set of behaviours appropriate for a business focussed on growth. These firms, unlike the ones described in the previous paragraph, will target high-volume, high-growth deals and products even if they result in low profit margins or even financial losses. The primary business goal is sales and market share. These companies often invest more heavily in R&D, product development, and sales and marketing than their peers. The centre column defines governance principals adopted by companies trying to balance growth, profit, innovation and asset utilization. The first steps that an organization, desiring to get its IT on the road to delivering business value, must take include an assessment of how it currently uses IT; followed by an implementation of the IT governance function. After these are well on their way to being established, portfolio planning concerns can be addressed.

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What Is Portfolio Planning? IT portfolio planning seeks to balance risk versus return, similar to the way a balanced investment portfolio is diversified across equities, bonds, and treasury bills. Investments in stocks offer high returns over the long run but are at risk of significant drops in value due to earnings shortfalls and market fluctuations. Treasury bills and bonds offer lower returns but virtually zero risk. Similarly, companies will choose to invest in different systems with the aim of achieving specific business results; from high profitability to high growth.

Infrastructure Investments In Table 2 we see that Infrastructure investments offer little ROI

A building’s foundation offers no measurable financial return to the owner. Without it, however, the building will become unstable and likely collapse in the medium to long term. Even while it remains standing it will experience numerous structural problems resulting in high maintenance costs. Due to the changing nature of IT and the limited life span of equipment such as network switches, disk arrays, and server hardware they will need to be replaced over the years. As new value-add services, such as a document management system in a legal firm, are added to the company’s IT landscape they will demand additional ‘foundational’ infrastructure. For example, the introduction of electronic patient record and imaging applications in a hospital environment will require high-

as they provide few direct financial benefits.

Information technology portfolio categories and associated benefits

Technologies Strategic

Informational

Transactional

Infrastructure

Benefits

Strategic systems are industryspecific and time sensitive. Some examples of past strategic systems include: • American airline’s SABRE network in the 1980s • Citibank’s widespread ATM network in the 1980s • Loan application and credit scoring

• • • • •

Increased sales Competitive advantage Competitive necessity Market positioning Innovative services

• Data Warehouse • Executive dashboards / balanced scorecard • Trending of process parameters • Credit scoring

• Better decision making • Higher quality products • Improved customer service/ retention • Increased control • Increased profitability

• Enterprise resource planning • Quality systems • Customer self-service systems (CRM) • Plant automation systems

• Increased profit / lower cost of doing business • Increased throughput • High ROI on IT investments

• Data networks, VoIP, telecommunications • E-mail, instant messaging, collaboration technologies, smart phones • Storage Area Networks (SANs) • Virtual server and desktop infrastructures • Firewalls, SPAM filters, encryption • Enterprise Service Bus (ESB) or SOA

• Business agility • Faster time to market with new products and projects • Lower IT costs over time

Informational

Strategic

Transactional Services

Private Infrastructure

Table 2 - IT portfolio characteristics and benefits

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capacity data storage and backup systems along with greater network bandwidth to workstations.

Theory in Practice: Portfolio Allocation

Infrastructure investments, when combined with a company’s governance and technology architecture standards and policies, will make a firm more ‘agile’ over time. These include

Determine the gap between how you use IT today and how your governance board wants it used

technologies such as SOA (Service Oriented Architecture) platforms, also known as an ESB (Enterprise Service Bus). They provide the connectivity ‘hooks’ required by new applications brought online to meet business challenges. These interfaces simplify systems integration and allow projects to be delivered

Define the business value of the roadmap throughout its life

faster and at a lower cost. By simplifying the technology landscape, they will eliminate the ballooning costs that are inevitable when systems are allowed to become increasingly complex. Investment in the infrastructure portion of the portfolio can be delayed temporarily as companies often do in tough times. Note however that a delayed investment in this quadrant will require the company to play catch-up once market conditions have improved.

Transactional Investments Transactional investments are the engine of an organization’s IT portfolio. They drive down the cost of business transactions through automation and the avoidance of errors associated with manual labour. ERP systems, once in the ‘strategic’ category, now offer cost savings through the automation of repetitive activities. They allow an organization to do more work while using the same number of employees or the same volume of work with fewer employees. Companies will often direct IT investments towards these types of systems in depressed economies.

Informational Investments Informational investments improve the quality of the various activities a company undertakes. They can, for example, identify a negative trend that a given manufacturing line is exhibiting and so avoid producing a batch of ‘out of specification’ product. They can equally support strategic platforms as described in the section ‘Strategic Investments’, where a credit scoring application helps a loan officer make better decisions on whom to approve for credit. The resulting improved decision quality avoids the losses associated with credit write-offs.

Design a ‘technology roadmap‘ establishing a timeline of projects that will get your company to the capability levels you want in each portfolio quadrant Deliver business value early in the roadmap

Strategic Investments Strategic investments are associated with high risk projects, about 50% of which typically fail to pay off. They are also game changers. A company that provides outsourcing services for credit card issuers offers a good example. In 1997 this organization was faced with a stagnant customer base that was at risk of shrinking. They also had an aging customer relationship management system and database running on mainframe technologies. At the time they were faced with massive changes that would have to be made to the system due to its inability to process post-year 2000 dates. Instead of performing a very expensive ‘maintenance’ overhaul they completely rebuilt it over a 2 year period on a more modern platform allowing them to plan future on-line services to their customers’ client base. One year after the initial migration was complete they implemented an Internet-based self-service application. During a two year period following the system’s launch, they became the only provider in their market sector offering online services. New client financial institutions quickly signed up to take advantage of this new service, paying fully for the system’s implementation and operational costs. At the same time the company benefited from a cost per transaction that was 1/3 the cost of call centre agents performing the same functions. Over time this strategic investment became transactional in nature as more services such as telephone IVR transactions were implemented. They re-used the same core systems and interfaces that had already been developed to provide these new value-add, cost-reducing services.

7-Eleven Japan offers a great example. By measuring which

Another example is that of an ‘expert system’ component in a loan approval application. These systems use the credit score

products customers were buying in a specific store and augmenting the stock of those items while reducing other less popular stock, they were able to increase gross margins from 5% to more than 30%. They simultaneously reduced stock turnover from 25.5 days to less than 8.7 days6 , and so increased working

and indebtedness of a given individual to recommend either approval or rejection of a loan application. As already mentioned this will cut the percentage of loans defaulted on, thereby reducing losses and increasing the institution’s profitability or competitiveness.

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How Much To Invest?

IT Strategic Impact Grid 8

How much a given organization invests and how it divides that investment across its portfolio is highly dependant on its business strategy. Table 3 shows 7 how much, on average, companies in four industry sectors spend as a percentage of revenue and the division of that investment across the portfolio.

Although this is typically an approach used in IT governance, it is also a good way for companies to asses the delta between where they are and where they want to be. The bigger the gap, the greater the effort (and cost) required to get to the target level of IT effectiveness.

A firm’s choice to spend above the industry average should be indicative of a plan to differentiate itself from competitors. It may, for example, be willing to temporarily forgo profits while it increases its market share and drives up sales. Above-average IT spending is not a good long-term strategy for most firms as

The grid (Table 4) has four quadrants indicating the ‘mode’ or way in which the firm uses IT. Firms operating in the left two quadrants use IT in a defensive manner. They can range from companies in which IT plays virtually no mission-critical role to those in which a very brief IT failure will result in significant

we’ll see in the section ‘What to Invest In?’. The same is true for a firm spending below industry averages. There should be a clear strategy driving the lower spend levels setting it apart from the industry such as a desire to reduce costs due to a recession or lost customer and so avoid employee layoffs.

losses. Firms operating within the two right-most quadrants see IT as an offensive or strategic asset.

Businesses in the financial services and insurance industries view IT as a strategic tool and so spend a correspondingly higher portion of their revenues. An organization’s understanding of where it stands today in its use of IT will help it plan how to get to its desired future state.

fashion and textile industries. Young companies or older companies experiencing sudden rapid growth due to newly successful business strategies may also initially find themselves in this quadrant. These organizations have operated with little IT investment in the past but now find their systems incapable

Support Mode - this is the mode organizations wishing to operate their IT at the lowest possible cost find themselves in. It may include those with highly manual processes such as in the

of

handling

rapidly

increasing

business

demands

and

2005 Portfolio allocation across industries

Healthcare IT Investment Allocation

13%

8%

Financial Services

16%

11%

Business Services

12%

7%

Average

12%

7%

31%

33%

30%

31%

48%

40%

51%

50%

Total IT Spending as % of Revenues

3.3%

7.1%

9.2%

3.7%

IT Capital Spending as % of Revenues

1.2%

2.1%

3.3%

1.1%

IT Operational Spending as % of Revenues

2.1%

5%

5.9%

2.6%

Table 3 - Industry IT portfolio allocation Note: Average revenue of companies surveyed = $1 billion

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transaction levels. They have the option of either moving to Factory Mode to improve reliability, possibly followed by a move to Strategic Mode. They may also decide they need immediate competitive advantage that can only be gained through the use of strategic technologies and so opt for a move to a Turnaround Mode of operation. Factory Mode - Companies in this quadrant are highly dependant on IT and will suffer an immediate loss of business were systems to fail. They do not, however, rely on IT to provide strategic advantage or drive sales or profit growth. Turnaround Mode - As previously mentioned, this quadrant is most likely to be occupied by either a start-up or a company moving from Support Mode to Strategic Mode. Operating in this quadrant will give a company coming from Support Mode the ability to immediately start using IT in a more offensive manner such as to reduce costs, offer new services to customers or drive increased revenues. Turnaround investments may be precipitated by the response to a competitive threat or the potential loss of a customer. Organizations in this quadrant are more dependant on technology however, and will likely suffer downtimes and business disruption while in it, making a move to Strategic Mode or Factory Mode essential.

Theory in Practice: Determining Spend Figure out what percentage of revenue you will spend. Use industry levels as a guide and have specific differentiating strategies when spending more or less Identify how your company is using IT and which mode it is currently in. Knowing which mode you want to be in will determine how much you have to spend to get there Adjust the percentage of revenue you will allocate based on your organization size.

Strategic Mode - Companies in this quadrant are relying on IT to deliver the same capabilities as Turnaround Mode but in a reliable fashion. Even short system downtimes will result in lost revenues and, potentially, lost customers. Using this grid when designing an IT technology roadmap will help organizations confirm that their investments over the life of the roadmap are in line with expectations. It will also help identify a path from the current to the desired state. Expect higher spend earlier on if you are moving from Support to Strategic.

IT Strategic Impact Grid

Low to high need for reliable IT

Defensive

Offensive

Factory Mode

Strategic Mode

• System failures result in immediate loss of revenue and/or business • Long system response times (multi-second) have significant impact on internal and/or external customers • Majority of core business processes are on-line • IT projects are primarily maintenance in nature • IT is not a strategic differentiator

• System failures result in immediate loss of revenue and/or business • Long system response times (multi-second) have significant impact on internal and/or external customers • IT projects transform the business through process change and new service offerings • IT delivers cost reductions • IT used as a competitive lever to reduce product time to market, cost, and/or other factors

Support Mode

Turnaround Mode

• • • •

• IT projects transform the business through process change and new service offerings • IT delivers cost reductions • IT used as a competitive lever to reduce product time to market, cost, and/or other factors • IT accounts for more than 50% of capital spend • IT accounts for more than 15% of company expenses

No serious consequences for multi-hour interruptions Response times as slow as several seconds IT not visible to outside parties; customers or suppliers Business can revert to manual processes for majority core activities • IT projects are primarily maintenance in nature

Low to high need for new IT Table 4 - IT investment behavior based on corporate goals

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Relationship of Spend to Company Size How much an organization invests in IT to get the same level of utility as other firms in its industry, depends on the company’s size. In Table 3 we showed that healthcare providers spend an average of 3.3% of revenues on IT. The results in this table are drawn from a survey of companies having average revenues of $1 billion. A small company in the same sector, with revenues of $100 million or less, should expect to spend twice the average, or 6.6% of revenues to get the same level of business value from their IT. Chart 1 9, showing a comparison of average spend across all industries to company size, illustrates this reality.

Larger companies are able to spend proportionally less to get the same services due to economies of scale. A set of core components, accounting for a large percentage of IT expenses, is always required regardless of company size. Data centres, storage area networks, ERP systems, business resilience / disaster recovery services are some examples.

IT spending by company size

Chart 1 - IT Spending by Company Size. Note: Small=$100 million or less; Midsize=$101 million-$999 million; Large = $1 billion or more

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What To Invest In? Once a company has identified the types of benefits it desires from the portfolio it must select the projects that will populate it. Ideas for these projects frequently come directly from the user community or from line managers. In fact, ideas are rarely the problem; figuring out which should be invested in is the

The authors performed a study on 452 companies. The results are depicted in Chart 2.

IT-business alignment, IT efficacy & CAGR 11%

Methods for prioritizing projects based on the value they will deliver to the business have been around for some time. Unfortunately, few of these capture the entire picture. Most focus on the financial contribution the project will make to the

Highly Aligned

company. Measures taking into account discounted cash flows using techniques such as NPV 10 and IRR11 are common. What they fail to address is the impact these projects will have on the company’s IT ecosystem as a whole and on future projects and ongoing operations.

Alignment

challenge.

illustrates the problem:

“Charles Schwab & Co. adopted a strategy of using technology to distance itself from competitors. IT was the key factor that allowed the young discountbrokerage house to offer customers lower prices on trades...in fact, Schwab transitioned itself into a fullservice, online broker, and by 1998 was earning a significant share of its profits in the online trading business. But in the next few years competitors caught up with Schwab, and some surpassed it...IT had become part of Schwab’s problem...IT staffers’ responses to business requests had become slow and expensive. IT engineers had to spend more time than ever fixing bugs in the systems. Meanwhile, several big, ambitious projects were overdue...and the slow progress was preventing the company from responding effectively to competition...Schwab was spending 18% of revenue on IT while its competitors were spending 13% or less...” ...the enormous complexity of the IT systems wasn’t the result of IT engineers somehow running amok. Rather, the company’s divisions were driving independent initiatives, each one designed to address its own competitive needs. IT’s effort to satisfy its various (and sometimes conflicting) business constituencies created a set of Byzantine, overlapping systems that might satisfy individual units for a while but did not advance the company as a whole.” © 2009 Knowledgework Inc.

Alignment Trap

IT-Enabled Growth +35

+13 -6

-14

8%

74%

Well-Oiled IT Maintenance Zone Less Aligned

The relatively recent, and concerted, push to align information technology to business strategy has led to a single-mindedness that has created its own set of problems. In 2007 MIT’s Sloan Management Review published an article, “Avoiding the Alignment Trap in Information Technology”12 , that best

7%

+11

+0 -15

-2

Less Effective

% of respondents

Efficacy

Highly Effective

Differences in percentage compared to overall average IT Spending

3-Year sales compound annual growth rate

Chart 2 - Corporate results compared to business-IT alignment and IT efficacy. Source: Bain & Company

Companies caught in the ‘alignment trap‘ were spending 13% above average on IT and yet were experiencing a 14% belowaverage 3-year sales compound annual growth-rate (CAGR). When IT spend is linked too tightly to the business, considerations such as IT architecture, personnel, and processes are ignored. Best practices such as Val IT for governance, COBIT and ITIL for operations, and TOGAF for architecture, have come about due to a necessity to increase the effectiveness of each dollar invested in IT. A different approach for scoring the business value of IT projects that takes these factors into account is required. In 2002 Intel, faced with a billion dollars a year in IT expenditures, decided they needed to better identify the value this significant expense was bringing to the business. The outcome of the exercise was the Business Value Index (BVI). Since then, not only has Intel demonstrated significant net value -add to their business, they have also helped hundreds of other 9

companies to implement similar programs. Forrester Research calls BVI, “a very practical process for IT portfolio management13,” and says that, “IT organizations looking for a straightforward methodology for valuing IT investments should take a look at the BVI methodology.14” BVI offers a sophisticated

A simple formula might be:

way of identifying business value without some of the more onerous aspects of complicated methods. It is an excellent tool for medium and large organizations alike.

Financial Attractiveness, as already mentioned, is an indicator that has been in use for some time to evaluate corporate investments. Ways of evaluating a project’s financial benefits include methods such as Internal Rate of Return (IRR), Net

Business Value Index BVI scores projects on three axes; ‘Business Value’, ‘Financial Attractiveness’, and ‘IT Efficiency’. The last criterion addresses what traditional scoring methods have ignored, the project’s impact on the company’s IT capabilities. Business Value If the project is strongly aligned with business objectives, it will likely deliver significant business value. Table 515 includes some examples. ‘Value Dials’ are measures used to score the project’s performance in a specific area. Each dial will also recommend a method of scoring. For example, let’s consider ‘Days of Inventory’, a dial related to the firm’s working capital. Reducing the days of inventory will result in numerous savings, the most direct being that related to the cost of capital.

(value of 1 day) x (days of inventory removed) x 15% [weighted average cost of capital] Financial Attractiveness

Present Value (NPV), and payback period. Examples are given in Table 5. IT Efficiency We also need the approach to be ‘architecture aware’, as mentioned. The third axis, ‘IT Efficiency’, takes care of this and much more. It also takes into account the IT operating cost impact, from technical and human resource perspectives, a project will have on the organization. See Table 5 for examples. Implementing a BVI Program An organization wishing to implement BVI should start with a working understanding of the methodology. A number of white papers and books have been written on the subject. There are

Business Value Index

Category

Business Value

Dial

Firm strategic fit/impact

Level of alignment with strategic objectives (SOs) - describe which SOs and how impacted

New or enhanced capability

Completely new solution to solve a business problem or an enhancement or incremental improvement

Impact on firm’s revenue

Directly related to protecting or enhancing the revenue generation environment

Internal Rate of Return (IRR)

The actual rate of return of the project, taking into account the time value of money

Payback Period

Period between initial investment and recovery of the total investment

Financial Attractiveness

IT Efficiency

Definition

Time To Market

Increases the speed at which IT products and services are deployed to customers firm-wide

IT’s strategic fit and impact

Level of alignment with IT strategic objectives

Table 5 - Business value categories and ʻdialsʼ

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also consultants who can help. Business stakeholders (boards, executive committees) will need to determine if additional value dials specific to the company or its industry, beyond those described in the methodology, should be added. Each dial also needs to be weighted based on its importance to the company.

Chart 3 is an example bubble chart displaying three projects proposed for the IT portfolio. The light yellow project represents an IT infrastructure requirement, in this case the installation of a storage area network (SAN). It is highly aligned with and contributes to IT efficiency. Its position on the horizontal axis

For example, conformance to SOX will be of considerable importance to public companies but not to private ones. Pharmaceutical companies will place a greater emphasis on regulatory compliance than a typical industrial goods manufacturer.

indicates that it offers little business value, while the small size of the bubble shows that it delivers negligible financial value. This project falls within a quadrant indicating it will deliver improved IT efficiency while offering no penalty to the business.

Finance departments will need to identify the discount rates to be used in assessing these investments. The same rate used to evaluate investments in other areas of the business such as new product development and plant equipment should be used. Finance should also help develop the spreadsheet that will be

regulatory requirements. This project offers significant value to the business. It has a negative impact on IT efficiency, however, as it is unable to take advantage of any but a very limited set of existing IT capabilities. The bubble size indicates that it has a reasonable return on investment. It falls within a quadrant

filled out to score new project proposals.

indicating it will likely require an increase in the IT operational budget to support it.

Furthermore, BVI is part of the total IT governance function. Processes must be in place for managers to submit new projects. IT must also engage with these internal customers to develop a business case, part of which includes filling out the BVI

The light purple bubble identifies a project required to meet

The dark purple project, entitled ‘CRM’, scored high in all areas. It lies in the Win-Win quadrant where contributions are made to both the business and its IT capabilities.

spreadsheet. Senior management will then be in a position to decide on this year’s technology portfolio.

Business Value Matrix

Chart 3 - Scoring of projects by business value, IT efficiency, and financial attractiveness Source: Intel, 2004; Knowledgework, 2009

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Other Considerations One of Intel’s goals when developing the BVI program was to identify the annual total value delivered by the IT project portfolio. In order to contribute to the methodology’s credibility, the estimated value at the start of the project was compared to the actual value delivered post-implementation. Tracking results is crucial if the program is to gain credibility. As the organization matures in its knowledge of the methodology, it will improve its ability to accurately estimate project benefits and so improve the project selection process. We see this in Intel’s year-over-year increases in value delivery.

About the Author For over a decade Asad Quraishi has helped both identify and evaluate IT investments in the business process outsourcing (BPO), banking, and pharmaceutical industry sectors. He holds a Bachelor of Applied Sciences degree in Electrical Engineering from the University of Toronto. For help in implementing the best practices outlined in this paper contact Asad at [email protected] or 1 (514) 667-5823. For more information, visit http://knowledgework.ca

In the first three years of the program, between 2002 and 2004, Intel identified a delivered net financial benefit of $180M, $419M, and $479M respectively.

Conclusion Using portfolio planning to align IT investments with corporate goals is an excellent step in making IT a key contributor of business value. There are other pieces of the puzzle that also need to be addressed. Which ones should be focussed on is unique to each organization. Companies wishing to achieve excellence in IT execution should start with an assessment of key IT process areas. A process maturity model such as that proposed by COBIT is a good tool to help identify what needs to be fixed. The assessment should be followed up with initiatives to address discovered weaknesses. Process models like ITIL will help determine how to fix them. It doesn’t stop there. Companies like General Electric and Toyota, known for their ability to execute, understand that having the right processes in place, such as Six Sigma and lean manufacturing respectively, is not enough. A dedication to continuous improvement is equally important to successfully applying, and benefiting from, best practices. Look for upcoming articles from Knowledgework on the benefits of implementing best practices in disciplines such as project management, business analysis, enterprise architecture and more.

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Endnotes “Enterprise Value: Governance of IT Investments, The Val IT Framework 2.0”, IT Governance Institute, 2008 1

2

ibid.

“Avoiding the Alignment Trap in Information Technology”, David Shpilberg, Steve Berez, Rudy Puryear, and Sachin Shah, Fall 2007, MIT Sloan Management Review 3

“IT Governance”, Peter Weill and Jeanne W. Ross, Harvard Press, 2004, pg. 2 4

“A Matrixed Approach to Designing IT Governance,” Peter Weill and Jeanne Ross, MIT Sloan Management Review, Winter 2005 5

Enterprise Architecture as Strategy”, Jeanne W. Ross, Peter Weill, and David C. Robertson, Harvard Business School Press, Boston, 2006 6

“U.S. IT Spending and Staffing Survey, 2005,” Gartner Group, November 2, 2006 7

“Information Technology and the Board of Directors,” Richard Nolan and F. Warren McFarlan, Harvard Business Review, Oct. 2005 8

“The State of the CIO: The Survey,” CIO Magazine, January 1, 2009 9

For a description of NPV see http://www.investopedia.com/ terms/n/npv.asp and http://en.wikipedia.org/wiki/ Net_present_value, accessed April 15, 2009 10

For a description of IRR see http://www.investopedia.com/ terms/i/irr.asp and http://en.wikipedia.org/wiki/ Internal_rate_of_return, accessed April 15, 2009 11

12

ibid. 3

“Optimizing The IT Portfolio For Maximum Business Value”, Forrester Research, Sept. 2005 13

“Measuring The Business Value Of IT”, Forrester Research, Sept. 2006 14

“Managing Information Technology for Business Value”, Martin Curley, Intel Press, 2004 15

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