Portfolio Objective Alignment: Putting Your Money Where Your Mouth Is

Transcription

1 Portfolio Objective Alignment: Putting Your Money Where Your Mouth Is Robert Handler Notes accompany this presentation. Please select Notes Page view. These materials can be reproduced only with written approval from Gartner. Such approvals must be requested via Gartner is a registered trademark of Gartner, Inc. or its affiliates.

2 Investments Don't Seem To Mirror Strategies or Expectations Actual Spending Values Reported If you want to know what people value, look at where they spend... In this economy, our spending must match our values We cannot afford to waste or miss the mark

3 Key Issues 1. What is portfolio management, really? 2. How can investment categories be applied to ensure that objectives are commensurate with reality even if objectives change? 3. What should be done to ensure that there is 3. What should be done to ensure that there is investment alignment in the real world?

4 What Is Portfolio Management, Really? The basic concept of portfolios IT portfolio management nuances A functional approach to IT portfolio management Most aren't really doing portfolio management they are just prioritizing lists.

5 Portfolio Management Is a Best Practice for Allocating and Adjusting Resources Personal Investment Portfolio IT Portfolio Risk Objectives Retirement College for kids Vacation Return Investments Home Equity Life Insurance Cash Retirement Stocks and Bonds Plan Business Activities Buy and Receive Sell and Ship Transport and Logistics Make/New Product Introduction Assets Applications Data and Information Operations Infrastructure Human Capital Projects ERP SCM CRM CPFR Collaboration Security Execute

6 IT Portfolio Management Is the Same But Different Enterprise Architecture Business/ Competitive Intelligence Enterprise Strategic Intent Critical Success Factors Enterprise Business Objectives Key Performance Indicators Business Unit Objectives/Requirements Balanced Scorecard IT Plan (IT Policies, Principles, Road Map, etc.) Requirements Stage 1 Opportunity Generation, Capture and Analysis Gate 1 Gate 2 Stage 2 Ideation IT Discovery Phase Gate 3 Stage 3 Feasibility and Assessment Gate 4 Stage 4 Idea Selection Reflects Regular Status Reviews Gate 3 Gate 4 Stage 2 Post-Launch Review Gate 2 Stage 3 Life Cycle Management IT Asset Phase Stage 1 Successful Launch Gate 1 Asset Transformation Discovery Proposals Asset Transformation Project Proposals New Modified Assets Gate 6 Gate 1 Stage 5 Launch and Implement Gate 6 Stage 1 Scoping/ Preliminary Analysis IT Project Phase Stage 5 Concept Maturation Approved and Mature Concepts Gate 2 Stage 2 Build Business Case Gate 3 Stage 3 Development Gate 5 Source: "IT Portfolio Management Step-by-Step: Unlocking the Business Value of Technology," Bryan Maizlish and Robert Handler, John Wiley & Sons, New Jersey, 2005 Gate 5 Stage 4 Test and Validation Gate 4

7 There Is a Process for Doing Portfolio Management Develop PfM Game Plan Plan Portfolio Portfolio Governance and Organization Create Portfolio Assess Portfolio Assess PfM Program Execution Balance Portfolio Communicate Portfolio

8 Using Investment Categories to Ensure Objectives Are Commensurate With Reality Investment categories explained Options for categories Disconnect between what we say and what we do

9 Investment Categories Are Like Budget Categories Budgets - A list of all planned expenses and revenues - Illustrates trade-offs between two or more items - Requires estimating value of competing items - Serves as a financial plan to allocate funds in support of multiple objectives College Fund Retirement Vacations Jewelry Like budgets, investment categories help you decide how to spend before you spend.

10 Investment Categories Align Big Dollar Objectives With Actuals Determine business objectives Identify risk/reward levels for the organization Determine management approaches Identify the types of metrics that are relevant Infrast. Utility Enhancement Frontier Investment Portfolio Venture Growth Discretionary Enhancements Non- Discretionary Core Discretionary Projects Nondiscretionary Costs TTB GTB Risk RTB "The perfect is the enemy of the good." Voltaire

11 The Real-World Impact of IT Portfolio Management: A Case Study The Results of IT Portfolio Management at a Large Telecommunications Firm After 6 Months $2,524 Million $695 $36 $124 $457 $138 $1,074 $2,163 Million $688 Million Reduction from 2000 Actuals ($196) $499 ($158) ($39) $194 $460 ($11) ($22) $102 $183 ($2) ($74) $383 $100 $73 ($137) $246 ($65) $45 ($28) ($162) $912 ($90) $822 $1,856 Million Total Hardware Capital TTB Low Risk TTB High Risk TTB Med Risk RTB Non Disc RTB Core 2000 Actuals 2001 YTD 2001 Recast Target Total Cash Outlay Reduced by 26% Year-to-Year (1).

12 What Should Be Done to Ensure That There Is Investment Alignment in the Real World? Secure sponsorship and commitment Plan portfolio investment strategy Build actual portfolio Compare actual to desired Balance

13 Secure Executive Sponsorship and commitment Define: - Objectives - Success criteria - Risks & assumptions Document in a charter - Signed and posted in public Three conditions to create lasting commitments*: - Un-coerced People have to feel as if they made the decision themselves. - Active Action, for example, writing the change down, anchors the change. Public When a commitment is made public, it is statistically more likely that they will stick with their commitments. * Source: Cialdini, Robert. Influence: The Psychology of Persuasion"

14 Plan Portfolio Investment Strategy Plan investment strategy Plan portfolio structure Plan individual subportfolios Infrast. Utility Enhancement Frontier Investment Categories Venture Growth Discretionary Enhancements Non- Discretionary Core Discretionary Projects Nondiscretionary Costs TTB GTB Risk RTB Plan to stakeholder decision-making needs and objectives

15 Build Actual Portfolio Populate portfolio Identify expected risks and returns Define metrics Build portfolio views High Business Value Portfolio View Low Run Grow Transform Investment Category Build to stakeholder decision-making needs and objectives

16 Compare Actual to Desired Monitor for triggers - Gates - Thresholds - Temporal Measure portfolio Compare metrics against targets Here, we essentially check budget to actual for the entire plan

17 Balance the Portfolio(s) Identify options Determine tradeoffs Select changes Implement changes HTML Portal Device Presentation Desktop Assets Green: Currently in good condition Yellow: Currently needs work, but not urgent Red: Currently in bad shape, urgent change needed Transact - Gray: Not yet needed or not yet measured ional Platform Windows Linux Unix Mainframe Storage SAN File System Database OLTP R/O Security Identity Permission Isolation LAN Network WAN Remote Access ESA Solution Portfolios Integration Proposed Content Analytic Change Projects High Business Value Low Changed Assets Projects Run Grow Transform Investment Category Project Portfolios Balancing becomes easier when you have a predefined goal

18 Recommendations Identify goals and objectives of the organization Identify risk tolerance of organization Create candidate investment categories Budget candidate investment categories Compare actual to budget Adjust

19 Recommended Gartner Research Six Steps to Keeping Basic Portfolio Management Basic Robert Handler (G ) Don t Wait: Three Simple Project Portfolio Management Scenarios and Solutions Michael Hanford & Robert Handler (G ) Project Portfolios and the Case for Contingency: In Fact, a Lot of Contingency Robert Handler (G ) Why People Make Irrational Decisions, and How PPM Leaders Can Deal With It Robert Handler (G ) For more information, stop by Experience Gartner Research Zone.