The Issue Defined: Chief information officers are embracing a new way of managing the projects that take place throughout their vast domains: viewing them as if they are part of a financial portfolio, with each project representing an investment that has its own goals and risks.
Why It's Important: Project portfolio management ensures that technology projects are not undertaken simply because they are interesting or employ the latest and greatest programming techniques. Rather, each project must address a specific business need - even if the payback is long-term, it must be evident. For this reason, the business side or chief information officer is a better strategic steward of the technology budget than IT, which can carry out the tactical execution of initiatives. But for CIOs to succeed as strategic stewards, they must be able to look across the firm. Managing projects like a portfolio of stocks allows them to dole out the majority of their firms' IT funds on initiatives with sound ROIs (much like investing in the S&P 500) while using a portion of the budget on the latest and greatest technology (as an investor would throw a few discretionary dollars at an up-and-coming small-cap stock). But the main benefit to the portfolio approach is that it allows CIOs to see when a project is going south and pull the plug before too much good money is thrown after bad.
Where the Industry Is Now: Most firms have already shifted to a model that has the chief technology officer reporting up to the chief information officer or chief operating officer. In terms of viewing projects as a portfolio of investments, the majority of firms have also begun to take this approach.
Focus in 2005: This year will see an acceleration in the trend toward horizontal, portfolio-like management of enterprise technology as more and more CIOs realize that the only way to track 250 or more projects is with the help of software. During the year, more vendors will enter the space with advanced offerings that provide more granular views of each project's performance through color-coding and other easy-to-recognize visuals that indicate a project's status.
Who's Leading the Charge: Bank of New York Securities Group, Citigroup, Deutsche Bank, Loomis Sayles, RBC Financial Group, Scotiabank, Wachovia Securities.
Some Vendors in the Space: Accenture, BearingPoint, Cognos Corp., Hyperion Solutions Corp., IBM, INEA Corp., Longview Solutions, Oracle, PeopleSoft, SAP, SRC Software.
Associated Costs: Implementation of a vendor-software solution can reach $300,000. But, because CIOs are better able to see the entire enterprise and are more likely to use applications or portions of applications that they already have built when constructing new projects, savings come in the form of lower development costs. Real cost savings, however, can be found on the maintenance side, where a common set of technologies with tight integration can result in reduced costs over time.
Industry Perspective: "I don't think any CIO has ever been fired for wasting $10,000, but you get fired for wasting a million. The key to [viewing projects as a portfolio of investments] is that it helps you identify the problem projects before they become significant," says John Gidman, chief information officer, Loomis Sayles. "The key to getting margin expansion is being in position to grow revenue without growing expense. The key to that is having very efficient, integrated business processes, and the key to achieving that is having collections of projects that fit together as a whole. I think the only way to achieve that is to treat your projects as if they are a portfolio."