No company has the resources to meet all of the business requests placed on it. Resource constraint issues are especially troublesome when times are tough. The typical response to managing scarce resources is to come up with a prioritization process to ensure that the approved work will provide the most value. But even with the process in place, you may wonder how you know that you’re applying the right resources against the highest valued work.

Portfolio management series

This is the first article in a series on portfolio management. It provides a high-level description of portfolio management and its importance. The rest of the series will include information on:

  • ·        Portfolio planning and prioritization
  • ·        Managing the portfolio
  • ·        Managing change within the portfolio
  • ·        Measurement and feedback

This is a tough question to answer and it certainly cannot be answered in isolation. What you really need to understand is your overall business strategy and where you are trying to move your company. Then you have some context in which to make decisions about what work is most important. In fact, you may turn down projects that have a huge return on investment because the project does not really help you execute your business strategy.

Financial portfolio management
You may be familiar with the term “portfolio management” in the financial sense. You want to manage your money in a way that maximizes your return and minimizes your risk. This includes understanding the investment alternatives available and picking the ones that best meet your overall financial goals. For instance, the investment decisions you make are different if you are 30 years old than if you are 55. Also, you don’t look at each investment in isolation but in the context of the entire portfolio. You may have a bond fund that is not doing as well as your stock funds. But you may decide to keep it because it provides balance to your entire portfolio and helps reduce your overall risk. Depending on market conditions, you may find that your stock funds are suddenly down, but your bond fund is now providing the counterbalancing strength.

Enter business portfolio management
Recently, this “portfolio management” concept has become popular as a way to manage business investments. At a high level, many of the same concepts are involved. You have a limited number of resources to apply to your investments. You want to manage these resources as a portfolio to maximize the overall value and to allow you to reach your goals.

Let’s focus specifically on the IT organization. Portfolio management is a way to plan, prioritize, and manage the work of the IT organization. Further, it helps you come up with the baseline to use to subsequently measure how well you’re managing the portfolio to meet the company’s needs. Just as with the financial portfolio, you start by gaining an understanding of where the organization is and where you want it to be in the future. You cannot start a portfolio management process by simply putting a prioritization process into place. You can’t prioritize work unless you have a context to guide your decision-making.

Start by understanding your organization
Start with a current state assessment that will tell you about your organization today. Describe your organization’s mission, vision, strengths, weaknesses, capabilities, products, services, customers, stakeholders, and values. This is not an easy assignment, especially the first time you do it. However, the subsequent yearly updates aren’t nearly as time consuming.

After you know where you are, define how you want your organization to look in the future—usually in a three- to five-year horizon. This is the future state analysis, which should be structured similarly to the current state assessment. Where should your organization be in five years in terms of its capabilities, strengths, weaknesses, products, and services? The answers will help you understand what the IT organization needs to look like to enable and support the changes.

Next, compare the current state of your organization against the desired future state to create a gap analysis that shows what has to change. The gap analysis, in turn, leads to your IT strategy.

Strategy
The IT strategy is a high-level set of directions that articulates how the organization will achieve its mission and move toward its vision. It provides an overall framework and context you can use to make decisions on how the organization moves from its current state to its future state.

Remember when I talked about having a prioritization process to help determine what work to include in the portfolio? The IT strategy is important because it provides a context that you can use to make these prioritization decisions. For example, let’s say you receive a proposal to save a substantial amount of money by rewriting a business solution using newer technology. Do you do the work? In the past, you might have looked at the ROI; if it looked good, the project might be approved.

When you manage your project as a portfolio, however, you don’t look at projects one at a time but as pieces of a larger puzzle. You check your strategy to see whether this type of project will help you get to your desired future state. If it does not, it should be rejected—even if it has a compelling ROI. If it falls under your strategy (say to reduce costs and be more efficient), you still need to balance the project against all of the other projects in the portfolio. If your portfolio were filled up for the year, you would need to determine what work would not get done so that this new project could be completed. If you are able to get incremental funding, you need to compare the relative value of this project with other work that is also important but could not be scheduled initially.

Growth is key
What you may find from the example above is that, unless the savings are compelling, this project will not get approved since it does not appear to move the company forward from a business perspective. Technology replacement that results in the same business capability is rarely as important as building new capabilities for growing the business. I’ll touch more on how this process is accomplished in subsequent articles.