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IT Portfolio Prowess

Investment managers aren't the only ones who need to manage portfolios. Now, the CIO does, too.

A trend is emerging among large Wall Street firms in which chief information officers are managing their organizations' technology projects much like investment managers would handle their clients' portfolios. Some firms have yet to embrace the approach, but many others are trying it on for size.

And then there is Boston-based Loomis Sayles & Co., which serves institutional, high-net-worth and mutual-fund clients, and manages more than $58.5 billion in equity and fixed income assets. "I wrote a column 12 years ago saying that the right way for CIOs to manage their technology projects was as a portfolio of investments," says Loomis Sayles CIO John Gidman. "I was on the lunatic fringe."

What put Gidman on the lunatic fringe - but has been widely accepted today as a necessary attitude - was his refusal to look at projects in a vacuum and simply focus on each initiative's individual merits. The key to the portfolio approach, Gidman says, is realizing that everything in the firm is part of one overall business process - from asset management, sales and client services, to investment-management research and risk management.

For its portfolio approach, Loomis Sayles uses no outside applications, preferring a homegrown solution to analyze its 250 concurrently active projects. In addition to software built in-house that monitors the projects, Gidman endorses the human touch. "We also make sure we have a strong chief architect who isn't doing the day-to-day stuff but ensures everything is working together," he says.

By employing both the custom-grown monitoring software and a watchful eye, Gidman says, a CIO can best determine if a project is still on track. "The most important thing in project portfolio management is to kill your project early. The key benefit of discipline is if something is going south, you either get involved or you kill the project early."

Tim Lind, a senior analyst with TowerGroup, a financial-services technology consultancy located in Needham, Mass., says that determining how much and how long it will take to complete a project is critical. "Just like any investment, you have to say, 'I'm in this investment for three to five years, and after that I have to review it," he says.

Loomis Sayles' monitoring software, Gidman notes, lets him see the amount of effort put into a project versus what the company had expected at the outset - information that can come in handy when evaluating the progress of large, strategic projects. The software "lets us focus on a mixture of qualitative and quantitative techniques," he says. "We don't try to be perfect, just good enough to get a bird's-eye view. It's the only way to look at hundreds of projects."

TowerGroup's Lind says that the portfolio approach also helps a CIO spread his funds around in a safe and sensible way. "Then the CIO can manage the budget like it was their own portfolio: If they get a million dollars, they can put a chunk into blue chips; they can take another piece and roll the dice on it - but you don't bet everything on that," he explains.

In addition to the clear cost savings of eliminating a money-pit project, managing technology in this fashion can yield savings in less-discernable ways. Loomis Sayles' Gidman says that a holistic view of the firm's IT assets means a CIO is less likely to reinvent the wheel - especially if he has five of them sitting in a forgotten IT niche. "It's akin to having to paint a house - you only want to buy one ladder," he relates. "That is the savings you get on the development side if you are using a common set of technologies and, to the degree you get integrated, your maintenance costs go down over time."

Loomis Sayles, Gidman continues, has been able to get its long-term system implementation costs below the industry average, thanks to the portfolio approach. Gidman puts the industry average around 30 cents on the dollar for the fully capitalized cost of a project. He says Loomis Sayles was down to 22 cents on the dollar and recently reduced that to 20 cents on the dollar. "Those are the kinds of efficiencies you gain by taking this approach," he says.

It All Starts With Integration

Like Gidman, many experts believe the only way to reach those efficiencies is from the high-level view gained through a holistic, portfolio approach to the enterprise's IT projects. Looking from such a high level, Gidman adds, a CIO can see that the key to firmwide IT success is integration. "Integration is the most important - and in many ways the only important - feature of any project. The network-effect of integration makes everything that you do more valuable," he says.

Drilling down into the firm's plans, Gidman says Loomis Sayles is now focusing on client-relationship management and sales-force automation. The company, he relates, took a look at available third-party applications last year, such as those from Siebel, SalesLogx, Salesforce.com and Onyx Software, but came to the conclusion that in-house integration of existing applications could get the firm where it needed to be.

Loomis Sayles, Gidman says, also spent time last year discussing reforms in its control and regulatory environment, including the addition of a chief compliance officer and related policies and procedures, to ensure enterprisewide coordination in an effort to satisfy the requirements of Sarbanes-Oxley, Basel II and Statement on Auditing Standards (SAS) 70 for service organizations. "In order to achieve those control objectives in a cost-effective way, in terms of having the recordkeeping that we want, the key to that is also integration," he explains. "It's kind of the natural follow-on from an STP approach - it's just a continuation of that integration.

Enterprisewide Health

When it comes down to it, Gidman says, running technology for a firm must be viewed in light of the financial health of the whole firm. That means managing budgets and technology to keep Loomis Sayles not only in the green, but getting ever greener. He notes that the company has pulled off the rare combination of growing revenue (up 9 percent year-over-year) while reducing expenses (down 3 percent).

Treating all projects as if they are in a bucket and must work together, Gidman asserts, is the only way a firm can achieve true operating leverage. "The key to getting margin expansion is being in a position to grow revenue without growing expenses, and the way to do that is by having a very efficient and integrated business process," he says. "The key to that is having a collection of projects that fit together as a whole, and I think the only way to do that is to treat your projects as if they are part of a portfolio."

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