Managing hundreds of IT projects is no easy task, but strategies such as project portfolio management (PPM) can ease the burden on CIOs. PPM is unique because, unlike other approaches, it allows CIOs to actively participate in maximizing the value of their IT portfolio while maintaining a high-level perspective.
Typically, CIO's have to overcome constraints in time and detail - they physically cannot go through all projects in a portfolio one at a time because there are too many. However, a review of the IT programs that comprise the portfolio and a determination of the appropriate funding for each is feasible. A CIO may be able to review 100 programs with a budget of up to $1 billion, rather than hundreds or thousands of projects at an individual level.
IT programs are analogous to investment funds; for example, programs are composed of many projects whose objectives support the overall program objective, very much like the stocks or bonds contained in investment funds.
Managing IT Portfolios Like a Money Manager
IT organizations have to treat their business partners in the same way that money managers treat clients: Identify the objectives of the portfolio and then identify investments aligned with those objectives.
Take the example of the annual IT portfolio selection and planning process at a modern investment bank.
To initiate the planning process, business unit CIOs (BCIO) meet with their business partners - the business unit CEOs (BCEOs) - to understand their IT portfolio objectives and available investment dollars. Like the money manager, the BCIO should then select the investments (IT projects) that best align with the client's priorities and constraints. This is a binary selection process - should project A or B be included given available funds and staff resources?
At the outset of the planning process, the BCIOs do not know exactly how much they ultimately will have to invest. In our investment bank example, one BCEO, say for equities, may take an optimistic view and allocate a 20 percent increase in the IT investment budget over the prior year. The budget will only be finalized by the corporate CEO, to whom the BCEO reports. The corporate CIO then will be responsible for allocating the actual budget appropriately across business units based on the corporate CEO's business priorities.
While BCIOs need to know the objectives of their respective business partners, the enterprise CIO needs to know how to prioritize business units' objectives against one another. This will drive the allocation of IT investment dollars to business units once the enterprise CEO determines the actual business appetite to spend on IT for the coming year.
After meeting with the CEO, the CIO reduces the budget - but in most cases will not entirely cut the budget - allocated to programs to meet the new budget constraints and cross-business priorities. When the CIO reduces funds for programs, it really means that some underlying projects that make up that program will need to be cut from the budget.
For example, the CIO may decide to reduce the budget of a new program for a derivatives global trading platform by 15 percent. It is the BCIO responsible for the derivatives program, however, who executes that decision. When the derivatives program budget is reduced by the CIO, it is the BCIO who must decide which projects to cut from the program to meet the lower program budget. While the BCIO needs to know the project detail, the CIO needs to work at the program level and have an effective process and algorithm for translating strategic budget allocation into effective project-selection decisions.
IT Portfolio Selection for CIOs, by CIOs
At many organizations, enterprise CIOs and business unit CIOs find themselves in an agonizing, time-consuming and never-ending budget cycle of cutting, recutting and re-prioritizing their investments. To avoid this, at a minimum, an enterprise needs effective governance structures, clear roles and responsibilities, and information that effectively aggregates projects and aligns them to business priorities. It also helps to have a clear and well-thought-out portfolio management approach.
Any good project portfolio management prioritization approach needs to have at its core two basics elements:
1. Agreeing on the priorities of the business.
2. Identifying the set of investments that most closely align with those objectives through a binary project selection and portfolio optimization process.
However, there is a crucial third step that goes beyond the money manager role: ensuring that the CIO has a process for allocating the appropriate budget amount to each investment program at the strategic level. We call this process Proportional Optimization.
This unique process allows for the identification of programs generating lower strategic value and provides a way to reduce - but not completely cut - their funding. The investment dollars then can be directed to the programs with higher strategic contributions.
The program-based approach does not eliminate the ability to make binary decisions; rather, it complements it by adding functionality and versatility to the selection process at the cross-business level. CIOs can still choose to cut programs or compare the strategic value of multiple projects across business areas.
The information needs of a BCIO and a corporate CIO are inherently different. The BCIO is responsible for key business deliverables and for managing projects on time, on budget and in scope. The BCIO juggles cost and resource constraints, project scheduling conflicts and changing business requirements.
From the big-picture perspective of the corporate CIO, there is little need or usefulness in having exhaustive detail on hundreds of technology projects. What is essential, however, is a global portfolio view of all planned investment programs, including combined strategic value, total financial spending (both capital and direct P&L) and projected benefits. The CIO needs to be able to influence investment decisions to assist the CEO in optimizing the business outcome (e.g., increasing shareholder value).
Proportional Optimization is a critical part of the portfolio management methodology. It takes into account the different information needs and time constraints at the various decision points within large organizations and offers a solution that is both robust and practical to manage portfolios at the cross-business level.
The enterprise CIO should, ultimately, be able to review the IT investment portfolio with the same level of ease, accuracy and decision-making intelligence as the money manager. Portfolio Optimization should be used by CIOs to overcome the issue of information overload that may impede them from doing so and ensure that they provide firmwide influence that is key to their role as leaders in the organization.
About The Authors
Gil Makleff, Cofounder and Managing Director, North American Operations, UMT
Gil Makleff is managing director of UMT's U.S. business. He launched UMT's presence in both North America and Europe and has ongoing strategic responsibility for the North American market.
Andrew Waxman, Vice President, UMT
Andrew Waxman is a VP at UMT. He specializes in technology governance process design and implementation and seeks to help firms apply traditional portfolio management practices to their IT investments.