Lack Of Financial Skills Sets Back Portfolio Management

CIOs, in principle, think portfolio management is a grand idea--treat IT projects and assets as investments, then manage them to increase their individual return and their value as a whole to the company. But many have trouble pulling it off. Why? Their subordinates, though skilled in technology, haven't mastered the financial skills to assess their work's value.

That's one conclusion of a soon-to-be released study on portfolio management by Northwestern University's Kellogg School of Management and management consulting firm DiamondCluster International. The study, done in collaboration with the Society for Information Management, surveyed 130 senior executives--90% of them CIOs or chief technology officers--from companies that average $230 million in annual IT spending.

Four out of 10 executives contend that a lack of financial knowledge among IT staff precludes the use of IT portfolio management in their companies. Eight out of 10 say a lack of staff financial skills makes it difficult to track the value of IT investments. Unlike staff in departments such as marketing or operations, most IT staffers aren't trained in finance, says DiamondCluster principal Ingmar Leliveld. But that's only part of it. "It's also a cultural issue," says Kellogg professor Mark Jeffery. "In the late '90s, money was thrown at IT in all directions. They didn't have to worry about ROI."

Until IT managers have financial training, portfolio management won't take hold as the lingua franca that lets the IT department communicate IT projects in business terms. "It's about creating a common language that helps align IT with business," Leliveld says.

Only 26% of executives say they track financial metrics after making an IT investment, but 63% would like to. What's holding them back? "They simply don't know where to start," Leliveld says. As a starting point, he recommends creating teams of IT and business staffers working together and focusing on one class of projects or assets. Then executives can expand the effort to other business functions and IT assets. Says Leliveld: "A company can't leapfrog to a high level of portfolio satisfaction."