IT Portfolio Management: Systems, Value, and Strategy

Introduction to IT 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).

The Need for Portfolio-Based IT Management

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.