How does IT Portfolio Management support Governance & enable alignment?

The Critical Tie between Governance & Portfolio Management

Information Technology (IT) investments represent over 50% of capital expenditures in organizations today. These business critical investments, which organizations rely on to create competitive advantage, improve profitability and overall corporate performance, have long been considered overhead, a necessary cost of doing business. However, large scale, multi-million dollar write offs of IT investments have led organizations to recognize the dangers of investing in IT without a clear understanding of potential returns or how those investments will support business objectives. As a result, executive management today is demanding visibility into the value of every IT dollar spent.

Most organization's are looking to develop IT governance decision-making frameworks and processes that define how all IT investments decisions will be made, where accountability lies for those decisions and the ongoing management of investments and technology standards.

Research shows that these organizations are on the right track. Peter Weill , Director, Center for Information Systems Research (CISR) & MIT Sloan Senior Research Scientist, studied the IT Governance frameworks of over 250 organizations and determined that those with effective governance structures in place earned higher profits by greater than 20% over organizations with poor governance frameworks in place.

However, effective IT governance requires access to key performance, cost, risk related information to support decision-making processes as well as a disciplined approach to decision making and performance monitoring and management.

IT Portfolio Management is the discipline of managing IT investments as you would a financial portfolio, balancing potential return, fit with objectives and risk assessment. IT Portfolio Management enables organizations to establish and adopt a formalized process for measuring and monitoring the value of IT investments, not to mention formalizing decision-making processes and frameworks as determined by the IT governance committee.

The Business Impact of IT Portfolio Management

Organizations are widely adopting the concept of managing IT investments within a portfolio framework and the business benefits are clear.

Recent research from Forrester Research indicated that "ITPM ... provides an effective process for aligning the strategic goals of the business with the appropriate IT strategy for maximum benefit."  Benefits include:

Critical to the success of any Portfolio Management initiative is having insight into the objectives the organization is striving to achieve. It is essential that IT management partners with line of business clients throughout the Portfolio Management process to ensure that not only objectives are understood, but the right balance between risk and reward is achieved. Working with the line of business also provides IT with an opportunity to gain agreement on how value is measured and managed while answering for the business ‘what am I getting for my money?'. This disciplined approach helps bridge a key communication gap providing the CIO, IT and business management with a common language and vision regarding the evaluation and management of IT value.

IT Portfolio Management follows a five step process to ensure investments are aligned with corporate objectives. This process is as follows:

• Determine the needs of the business. Effective portfolio management requires visibility into all the demand for IT services, not just new projects.

• Evaluate the costs, risk and benefits of potential investments candidates . Once demand is gathered, the evaluation of resource (staff and budgets) allocation alternatives can begin. Organizations should support a collaborative environment where line of business and other key stakeholders can contribute to the process of assessing costs, requirements, risk and potential benefits of an investment.

• Prioritize and select those investments that best align with business objectives . Alternative portfolio scenarios are evaluated against key business objectives and the impact on existing systems, investments, resources to determine the best investment mix.

• Set schedules and balance resource requirements. Resource management is a critical consideration when evaluating the impact of alternative scenarios on staffing requirements. 

• Measure and manage the value of the portfolio over time . Real-time access to portfolio performance information is key to enabling ongoing health monitoring and ensuring the portfolio remains aligned as business conditions change. Portfolio management solutions should also offer comprehensive "what if" analysis to enable organizations to evaluate alternative scenarios and understand the business impact of shifting resources throughout the period.

"Portfolio management helps overcome the disconnect in communications between the business and IT communities. It is an excellent way to deal with the perennial questions about IT value and IT alignment with the business."

Bill Rosser, Gartner

To effectively implement IT Portfolio Management organizations require

• Defined processes for decision-making
• Criteria for evaluating alternative scenarios
• Metrics for measuring the ongoing value of investments
• Systems that support these processes. 

A critical aspect of IT Portfolio management and effective governance is visibility into how resources are deployed across the organization, how effectively resources are being leveraged and allocated, the true cost of investments and associated risks. This kind of visibility is only provided by managing IT business processes like a business, leveraging systems that automate core processes and provide real-time visibility into accurate performance metrics.  IT is only now embracing this caliber of business system for managing their operations.

To learn more about what to look for in an IT business management and governance solution, click here.