Matakuliah : A0824/IT Investment Portfolio
Tahun
: 2009
INTRORDUCTION TO IT PORTFOLIO
MANAGEMENT
Pertemuan 1-2
You can either take action, or you can hang back and hope for a
Miracle. Miracles are great, but they are so unpredictable.
~ Peter Drucker ~
Emergence of IT Portfolio Management
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Growth in Adoption in IT Portfolio Management
Objective of IT Portfolio Management
Why Assessment Standards Are Used
New Perspective on Assessing IT Worth
New Perspectives on IT Management
Growth in Adoption in IT Portfolio
Management
Managing IT from an investment perspective – a
continuing focus on value, risk, cost and benefits – has
helped businesses reduce IT Costs by up to 30 % with a
2X – 3X increase in value
Examples
• Merrill Lynch reported that using IT portfolio management saved
between $ 25 million and $ 30 million in one year by slowing down
or stopping planned initiatives and redirecting project funding faster
and more effectively
• After Mercy Health Partners, a six hospital network in Toledo, Ohio,
adopted IT portfolio management, Gartner Group found it to be 30%
more cost effective in running its IT platforms than a peer group
handling the same workload.
Objective of IT Portfolio Management
• Maximize the return on IT investments and achieve performance
objectives at acceptable cost and risk.
• To identify and fund – or continue to fund – only the best investment
• Reviewed to reconfirm its continuing worth as the best use of the
funds
– Done during the time it is an IT project as well as after the project is
completed and it has become an implemented system.
• if at any time it is found not to be the best use of the funds, a
decision will be made to:
– Change
– Replace
– Discontinue the project or system
• Competition with other possible use of the fund
• Adjusted for the amount of risk associated with the portfolio.
Why Assessment Standards Are Used
• Are aligned with the organization’s goals and
performance targets
• Respond to priority needs and opportunities
• Provide a superior balance of benefits, costs, and risks
• Complement other investments and interoperated with
existing systems
• Do not duplicate or overlap other investments
• Support or complement the target enterprise architecture
• Incorporate Information security measures as needed.
New Perspective on Assessing IT Worth
Old Perspective on Assessing IT
Worth
• Mainly financial
• Cost savings/tactical
• Single business area
• Near term benefits
• Acquisition costs
• Multi year projects
• By the IT department
• Technically risky
• Standalone systems
• Multiple architectures
• Pre Project assessment
• Project management
• Focus is on internal
• Objectives and users
New Perspectives on Assessing IT
Worth
• Holistic
• Opportunity/strategic
• Multiple business areas and enterprise
• Life cycle benefits
• Life cycle cost
• Modular, incremental projects
• By line manager and team
• Organizationally risky
• Interdependent systems and
infrastructure
• Enterprise architecture
• Pre, during, and post project
assessments
• Organizational change and value
management
• Focus is on enterprise strategic
New Perspective on Assessing IT Worth
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More Emphasis on Non Financial Criteria
Recognizing that ROI is Not Enough
Emergence of New IT Investment Criteria
Acceptance of the Need for Comprehensive Criteria
New Perspectives on IT Management
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Increased Strategic Use of IT
An Enterprise View
Benefits, Costs, and Risks over the Life Cycle
Modular, Incremental Projects
Line Manager Responsibilities for IT
Risk Associated with Organizational Change
Importance of Infrastructure and Interdependencies
The Enterprise Architecture
Assessments over the Life Cycle
Management of Organizational Change
Focus on Strategic Goals and the Customer
The Sunk Cost Fallacy
Sunk costs are unrecoverable past costs. This are the
costs incurred before the current evaluation of a
proposal
Such costs have no significance in proposal evaluations
and should not be used. Only new or incremental costs
are relevant to current proposal funding decisions.
Some people believe that ignoring sunk costs wastes
resources.
Example:
If $ 500,000 has already been spend on a project, some
believe that those funds will be wasted if the project is
not completed . Actually, nothing can be done about the
funds previously spent. The question is what is the best
use of any new funds. It may or may not be wise to put
additional funds into the project on which $ 500.000 has
already been spent. The decisions now must be for the
best use of the present funds-that is, to gain the best
investment returns and greatest contribution toward
achieving the priority objectives
Bina Nusantara University
11
Reason to have periodic assessments over the life cycle of
an IT Investment:
• A Change in the goals of an organization may mean the project is no
longer aligned with the goals and may not be needed.
• Projects that have been broken into chunks need to be assessed to
determine what changes, if any, need to be made in the next chunk
or in the completed chunk(s).
• After the project has been completed and the system has been
implemented, periodic evaluations help to ensure that the in place
system deserves continued funding.
• Periodic assessments provide information needed to shift resources
from IT investments that are low yielding, risky, or poorly aligned to
those that are high yielding, less risky, and aligned with the priority
goals of the organization.
Adopting a Portfolio Management View
Modern Portfolio Theory
• Determine how risk the organization is willing to take
when investing in IT
• Seek diversification among IT investments as a means
of reducing overall IT investment risk
• Balance IT investments by type of investment by
performance area and by investment phase to improve
portfolio performance results while reducing portfolio
risk.
• Evaluate alternative IT investments and portfolios to
make sure that the portfolio planned or being used
provides the highest return for acceptable levels of cost
and risk.
Adopting a Portfolio Management View
• Practical Definitions
An IT portfolio is a collection of information about
investments in, or that involve, information technology.
Every significant IT asset is described in the IT portfolio,
along with every initiative, program, project, business
activity, business process and strategy, outsourcing
contract, and license that involves, relies on or makes
use of IT
Adopting a Portfolio Management View
• Definition of IT Portfolio Management
IT portfolio management is a process for identifying,
measuring, and controlling an optimal mix of IT
investments in order to maximize the contribution of the
investments to the achievement of the priority enterprise
goals and objectives at acceptable levels of cost and risk
Nature of the IT Portfolio
• Asset Performance Information
• Improvement Needs and Opportunities
• Controlling, Aligning, and Focusing IT Resources