This paper examines IT portfolio management as a strategic framework for evaluating and leveraging technology investments in organizations. It covers the rationale for portfolio-based IT management, the attributes of sound IT investments, methods for assessing business and financial value, and the role of risk analysis and feasibility studies. The paper also explores the integration of IT and business strategies, strategic investment categories, project management tools, and the perspective of government agencies such as the U.S. Information Services Board. A critical evaluation addresses limitations including cost overruns, integration problems, and restrictive regulatory environments, concluding with recommendations for maximizing the benefits of portfolio management.
IT portfolio management is a system that enables organizations to evaluate technology systems available at a given point in time, or planned for the future, and leverage them for improvements in performance. There are different portfolio systems: application portfolio management, which deals with current IT resources, and project portfolio management, which covers proposed IT investments. The IT portfolio management market was still in its early days at the time of writing, estimated to be worth US$15 million. Since the concept was catching the attention of information technology specialists, it was projected that the portfolio management tools market would expand rapidly. Forrester Research claimed that the market would grow to over US$400 million by 2008, while others such as the Meta Group were even more bullish, predicting growth to US$480 million by the end of 2005. Gartner Research reported that approximately 70 percent of its clients were working with some form of IT portfolio management system, particularly in the preceding eighteen months (CIO Information Network, 2004).
One of the major reasons for the exponentially growing interest in the portfolio approach is technology advancement. The 1990s witnessed companies in many fields invest in and acquire technology at a rapid pace, leading to considerable gaps between investment and implementation. Companies found that it took a long time for new IT investments to be installed and used regularly within the organization, by which time new technologies or upgrade versions had emerged, requiring further incremental investments. This led to wastage of resources and failure to achieve projected results. However, the grim realities following the crash of IT markets across the world from 2000 onward forced top management of companies, large and small, to cut IT budgets and demand greater justification from IT managers for new investments (CIO Information Network, 2004).
Consequently, IT managers began making centralized evaluations of the resources they had on hand and determining their value before planning new systems. It is in this context that IT portfolio management became a powerful tool enabling Chief Information Officers to make informed investment decisions and determine what could best be done with investments already made. Increased productivity is perhaps the major factor drawing IT managers toward a comprehensive portfolio system. This means the IT department can aim to achieve more at lower costs, directly contributing to companies' bottom lines. For example, British bank Abbey National achieved 20–30 percent higher programmer productivity by using portfolio management, as documented in a Forrester Research Report. An even more compelling driver is that portfolio systems typically have a return on investment measured in months rather than years, which is the usual case with most investments (CIO Information Network, 2004).
The concept of IT portfolio management is an offshoot of the basic management principle that investment decisions in business should be based on perceived returns. In traditional industries such as manufacturing, infrastructure, and trading, investments are made based on the value they can provide to the firm. It follows logically that IT investments should also aim to maximize value for the firm in proportion to the level of investment. Real estate, financial instruments, and investments in equity and commodities are managed in portfolios, providing investors and managers with the ability to maximize returns by choosing from a range of investment options and the flexibility to make wholesale or discrete investments, depending on the risk-return profiles they are comfortable with.
The attributes of a rational IT investment stem from the assessment of available resources and the requirements of the business, both current and future. From the perspective of portfolio management, a potential IT investment should possess most of the following attributes: functionality, interoperability, scalability, portability, reusability, availability, and serviceability. Above all of these is integration — the alignment of the new investment with existing systems. The investment idea, systems, and implementation may all be sound, but without proper integration the value of the new investment will fall short of expectations. Conversely, fresh investments and modifications to existing resources may be essential to ensure the integration of new projects.
When organizations are confronted with proposals for IT investments, perhaps the first question concerns the value such investments will bring to the business. The portfolio approach therefore demands evidence of business value, which requires a thorough understanding of the impact the IT investment can possibly make on current business dynamics. One of the basic steps is to unravel the relationship between the IT initiative and the business requirements and processes, including the criticality of the proposed system, the creation or upgrading of IT infrastructure, and the internal and external consequences of the initiative. The total business value is the sum of the benefits of these elements, which can also be supported by intangible benefits. Another key measure is the financial value of the investment, requiring in-depth financial analysis involving computation of return on investment, internal rate of return, net present value, and cost–benefit analysis. If the projected benefits meet or exceed accepted financial norms, the project is more likely to be approved.
There are several costs incidental to IT systems, many of which must be incurred regardless of whether benefits are realized. There are tangible costs and intangible costs, leading to the conclusion that costs can be either expected or hidden. IT expenditure is generally split into development and operational costs, within which there is a further breakdown of individual costs (Hochstrasser and Griffiths, 1990). These include costs for hardware, software, installation, operation and maintenance, networking, security, training, and environmental requirements. The portfolio approach seeks to identify all costs in advance and monitor spending in tandem with returns. Cost control and reduction can lead to improvements in profitability, making this area of particular importance within the IT portfolio management system.
Portfolio-based IT systems can impact business at the national level. For instance, the United States has a special provision for portfolio-based IT management in its Information Technology Act. It is aimed at the successful management of the entire spectrum of technology investments, covering the country's infrastructure as well as the IT portfolios relevant to specific firms. The approach concerns itself with the stewardship of the full range of IT investments and aims to ensure greater responsiveness to the changing needs of people and businesses. A typical portfolio-based IT management framework encompasses key factors relating to the design, sourcing, implementation, and maintenance of IT systems. These include:
The principal objective of IT portfolio management is to view all IT resources as an investment portfolio. One of its unique features is that a good portfolio responds to the various parties involved — the agency's technical and business managers, government agencies, relevant government officers, and the legislature. Information in an IT portfolio is organized in different ways depending on agency requirements, without imposing additional burdens on existing systems. The focus is on the opportunities and problems that arise from the agency's current and planned IT strategies. Thus, the portfolio contains information on the agency's business objectives, processes, and strategies, as well as detailed information on hardware, software, networking facilities, technical expertise, and staff capabilities. The software and system applications that support the agency's business operations also feature in the portfolio. The cost of current investments and how the cost structure would change as a result of planned investments are also of crucial importance to the success of the portfolio. Relationships with other organizations can likewise affect the portfolio.
"Aligning IT goals with broader business objectives"
"Government frameworks, risk criteria, and feasibility studies"
"Tools, oversight levels, and project classification"
"Limitations of portfolio management and concluding advice"
You’re 27% through this paper. Sign up to read the remaining 4 sections.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.