Portfolio Management ensures that projects are done right and that the right projects are done
It was only four or five years ago that the IT budgeting process could be summarized in three words: spend, spend, spend. Dave Raspallo, CIO of Textron Financial Corp., a $10 billion commercial-finance company, saw the danger signs of runaway projects early on, during the run-up to Y2K and the subsequent Internet boom. "The perceived notion was that you had to spend your way out of trouble," Raspallo says.
With a $35 million IT operating budget and a $17 million capital budget, Raspallo can ill afford that kind of thinking or projects that don't add real value. Fortunately, he has an IT governance process, supported by a portfolio-management system from Niku Corp., to ensure not only that projects are done right but that the right projects are done.
It's the process, and not technology, that makes for effective IT governance. "Products like Niku help manage the process, but before you get into tools, you have to have processes in place," Raspallo says. These processes involve inventorying IT resources, including skills, hardware, and software; analyzing their use by business goal, risk, budget, and expected return; and scenario planning.
The combination of processes and technology has enabled Textron to instill discipline among its 125 internal IT employees and its 25-person offshore-development factory in Chennai, India. As a financial-services company, "our technology is our factory," Raspallo says. "We can't do without a well-defined portfolio-management process."
Companies like Textron are applying investment-portfolio techniques to IT assets, analyzing them along dimensions such as goals, risks, costs, and expected returns. Assets are classified as they would be in an investment portfolio--growth versus income, for example--and acquired or disposed of to achieve the desired balance for the portfolio.
For business operations in general, this approach isn't new, but for business-technology assets, it is. "Portfolio management has been going on for years, but IT is just starting to get its arms around it," says Margo Visitacion, an analyst at Forrester Research.
IT hasn't had a business-management system of its own, says David Hurwitz, VP of marketing at Niku. "It provides business-management systems to the rest of the enterprise while managing its own business with spreadsheets and E-mail."
Altria Group Inc., the tobacco and food-products conglomerate, has a well-defined process for choosing tech projects, including gathering project information such as cash flow, return on investment, interfaces, and regulatory-compliance issues from IT and business managers. It uses Pacific Edge Software's Portfolio Edge system to create a risk-based score of each project and to plot them on a grid with risk on the horizontal axis and value on the vertical axis. Managers can then choose projects based on an optimal balance of risk and return.
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