collectionI’ve posted recently about Program Management – mainly in response to a reader’s question about how to group projects into programs.  Her question, in turn, was in response to one of my most popular posts on the distinctions between Project, Program and Portfolio Management.

IT Portfolio Management Matters!

I’m delighted that my old post on this topic (about 16 months ago) keeps attracting readers – portfolio management is one of the most important keys to business value realization from IT.  It is also often poorly implemented.  In fact, quite often, the term “portfolio management” is used without any justification in reality.

Modern Portfolio Theory

IT portfolio management is rooted in Modern Portfolio Theory.  Defined by Wikipedia, Modern Portfolio Theory:

proposes how rational investors will use diversification to optimize their portfolios…

When applied to IT, Portfolio Management proposes how the organization (assuming it is acting in a rational way towards its investments) uses diversification to optimize its IT investments.  In this case, optimization may include balancing:

  • Short term and long term investments.
  • Low risk, low return against high risk, potentially higher return initiatives.
  • Common and shared (i.e., IT infrastructure) against business unit specific investments.
  • Investments by major business process.
  • Creating new capability versus maintaining existing capability.
  • Investing in IT process and capabilities (i.e., improving the “business of IT”) versus investing in IT capability for the business.

IT portfolio management is the primary means to elevate IT decision making and investment prioritization to a business issue.

In this context, IT portfolio management implies a top down decision making framework.  It implies that:

  • Senior executives have debated, considered and reached consensus about their IT investment portfolio strategy.
  • This, in turn, implies that senior executives have considered and agreed to a business-IT strategy.
  • They have wrestled with the thorny questions about “level of optimization” of IT investments – whether this should be a business unit or function (implying a conglomerate or holding company model) or the enterprise (implying a more integrated business model.
  • If they balance by business process, that the major business processes have been defined, and their importance to business strategy execution determined.
  • They are able to monitor the gaps between their actual IT investments by portfolio category, against their target, or “model” portfolio, and can make adjustments as necessary.

Not a Collection of Projects

From time to time, I see consulting clients attempting to implement portfolio management from a collection of projects.  Sometimes, this activity includes taking a huge list of several hundred (in one recent case, nearly a thousand!) to the business so they can “prioritize the portfolio.”  This bottom-up approach is always doomed to failure.  It is often the result of several years of “order taking” behavior by the IT organization, and is, in fact, the order taking equivalent,  elevated to a different level.  It effectively says:

We’ve taken orders from you for years, and now we have this huge list of projects.  So, please take a look at them, and help us prioritize them, because we can’t do them all!”

This cannot work, and ultimately, reinforces order taking behavior, and the sense that IT does know know what it’s doing, and does not deserve the trust of its business partners.

A Question of Business-IT Maturity

I’ve written extensively about Business-IT Maturity and its relationship to business value. (For a more comprehensive treatment, use this search.)  At very low maturity, by definition, the business executives will not have the wherewithal to engage in and answer the questions exemplified in the bullet points above, so implementing portfolio management is going to be virtually impossible.  But, to get to higher maturity, these questions have to be understood, discussed and decided upon, so the IT leadership is best served educating the business till it is ready to engage meaningfully in these questions.  At that point, they will be ready for IT portfolio management.  Until then, be careful not to call bottom up collections of projects, “portfolios.”  If you do, when you are finally ready to introduce portfolio management, the language, and the business discipline it connotes, will have been polluted.

An the Link Back To Programs?

Finally, linking back to the start of this post, and the readers question, “Programs” become the most meaningful intermediary between “projects” and the “enterprise IT portfolio” – a manageable and meaningful “unit of value-producing work” that business executives can get their heads around.

Photo courtesy of the Building and Fire Research Laboratory.