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Diagrams to Help Build Your Portfolio Management Skills

May 01, 2003 — CIO — Companies must visualize their IT portfolios on multiple levels and at different stages for a true and thorough perspective of their IT investments. To gain the holistic view necessary for portfolio management, investments should be viewed in aggregate and placed into categories, with the percent of IT spend apportioned across each. Figure 1 depicts one such model, developed by Peter Weill, director of MIT’s Sloan Center for Information Systems Research, and Marianne Broadbent, group vice president and head of research for Gartner’s executive programs worldwide, that is based on an ongoing study of 54 companies in seven countries. This model provides an executive-level analysis of the enterprisewide IT investment and its alignment with the general strategy of the business.

Figure 2 shows a ground-level view of how one company monitors every aspect of its portfolio, from the initial business case to spending updates. Brigham Young University (BYU) has developed this tool to allow business and IT leaders to monitor projects and facilitate the university’s ongoing portfolio management.

The Weill model and the BYU tool are only two examples of the many ways to look at IT portfolios and projects. But they illustrate the range of views that are essential components of a complete and effective portfolio management process.

Figure 1

The High-Level View?The Portfolio Pyramid

The IT portfolio at the highest level can be categorized into several investment classes. In the MIT model, the portfolio pyramid rests on a base of infrastructure investments. The next layer is transactional systems, which depend on a reliable infrastructure. At the pinnacle are information-producing technologies and strategic-class systems.

The Four Asset Classes?Risk Versus Reward

Infrastructure
These investments provide a shared and standardized base of capability for the enterprise and lead to greater business flexibility and integration. Infrastructure investments are moderately risky because of their technologies’ long life-spans and technical uncertainty.

Transactional
These IT initiatives process and automate the basic transactions of a company. They are intended to reduce costs and boost productivity and boast an average internal rate of return of 25 percent to 40 percent. These investments have the least risk of the four classes.

Informational
These systems provide information for managing a company. Their payoff comes from shorter time-to-market, superior quality and the ability to set premium prices. They are moderately risky because companies often have difficulty acting on information to generate business value.

Strategic
These investments, almost always external-facing systems, pay off in sales growth, competitive advantage and stronger market positioning. But they are the riskiest of the classes: 10 percent will produce spectacular results, but 50 percent will fail to break even.

 

 

 

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