Meta Report: Portfolio Management Helps Manage Through Uncertainty - Page 1

Sep 27, 2001

CIO Update Staff

By Meta Group Staff

Situation Analysis: The economic boom-and-bust roller coaster of the past three years has been a sharp reminder to business and IT executives about the need for level-headed management and clear vision. During the late 1990s and the first half of 2000, it was a difficult challenge to keep business expectations and spending at realistic levels. When the economic tide changed, the challenge was to ensure that cost control actions were pragmatic (vs. irrational cuts in core business and IT capabilities).

During this tumultuous period, assessing and communicating the value of IT investments has been a constant "reality check" that has enabled managers to resist the siren songs of excessive optimism or across-the-board pessimism. To maximize the reach and benefits of this management discipline, which combines the mathematical purity of statistical analysis with business knowledge and intuition, many leading enterprises have followed the example of the financial industry and applied portfolio management disciplines to business and IT investments.

A business's portfolio of investments may include the following: business units or departments; business activities and processes; knowledge capital (e.g., patents, in-process R&D); physical assets (e.g., buildings, product and part inventories); financial flows and accounts; and human capital (i.e., people).

For IT groups, the portfolio may include hardware (e.g., servers, storage, desktops, networks, mobile devices), software (e.g., applications, databases, operating systems), information/data, processes, budgets, and people. For both business and IT groups, projects are also a key part of the portfolio, because these investments define how different assets within the portfolio will evolve.

Other Recent META Reports
The Hidden Costs of Handheld Devices

Order Your IT Investment Portfolio Lean, Well Done

Tackling The Instant Messaging Tiger

Secondhand Hardware A 'Risk E-Business'

Understanding asset attributes is relatively straightforward in the case of IT hardware, which has qualities such as purchase price, maintenance cost, depreciation algorithm, and residual value. Software typically involves licensing fees as well as ongoing maintenance costs. Processes, budgets, and people are areas where more sophisticated attributes are often required. Project attributes include deliverables, timetables, milestones, resource projections, and overall budgets.

A key challenge has been deciding to what extent portfolio management techniques should be applied. For some organizations, simply categorizing IT investments and using portfolios as a communication tool is sufficient. Others have benefited from applying detailed statistical and management processes to their IT and business investment choices. The need to assess the degree of portfolio management discipline and detail that is appropriate for particular organizations has spurred the creation of META Group's model for business and IT portfolio management.

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