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Common Mistakes in IT Portfolio Management
By Vaughan Merlyn

IT Portfolio Management is at the heart and soul of leveraging IT for business value. And yet most IT organizations do a poor job of managing IT investments as a portfolio. At its best, IT Portfolio Management (PfM) is a way to:

  1. Define your investment strategy for IT – including needs for risk/return, innovation, common enterprise-wide capability.
  2. Make that strategy visible and understandable to business executives to allow dialog and debate to reach agreement with key business stakeholders.
  3. Monitor performance of the IT portfolio.
  4. Adjust the portfolio based upon actual performance of IT investments.
  5. Adjust the portfolio based upon changing business conditions.

At its worst, PfM is simply a laundry list of projects, or, even worse, a collection of laundry lists, one or more for each business unit and corporate function. What are the common mistakes being made here?

  1. There really is no tangible IT investment strategy – just a bucket of money and funding sources. Projects get picked off until the bucket and funding is consumed – everything else sits in a backlog. In so far as prioritization is concerned, at best it is within business silos, at worst it’s based on squeaky wheels and politics – not potential business value.
  2. Business executives have a hard time understanding and engaging in portfolio investment decisions based upon laundry lists of projects – in fact, it can’t be done!
  3. You can’t monitor portfolio performance based on a laundry list of projects. Yes, you can monitor project performance (though from my experience, if you don’t have the financial and management discipline to use PfM properly, you probably aren’t monitoring project performance except from a time/budget perspective, which tells you nothing about business value). If you can’t monitor portfolio performance, you can’t make adjustments based on data – at best you adjust based on politics and knee jerks, at worst, you don’t adjust.
  4. You aren’t really thinking about risk/return profiles in a meaningful way – this tends to emphasize low risk, low return initiatives and starves the enterprise of the more innovative and potentially “game changing” IT plays.
  5. Often the portfolio only addresses new, major project initiatives – IT services and smaller projects are not under the umbrella of PfM – and yet these “non-big” activities typically consume 60%-70% of the IT budget – the lions share is untouched by PfM disciplines.

If PfM is not firing on all cylinders, the business won’t see the value, the costs of IT and business value delivered through IT will not be impacted over more than the very short term, and PfM won’t achieve a critical mass of benefit to overcome the organizational inertia, and will fail.

Vaughan Merlyn is a management consultant, researcher, and occasional author. His primary focus for the last 35 years or so has been and continues to be the use of information and information technology (IT) for business value creation. Vaughan is an Executive Vice President with nGenera. In that role, he participates in multi-company research projects, consult with Fortune 500 type companies, and provide Executive Education. His blog can be found at http://vaughanmerlyn.com/.

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