Holistic approach reinvigorates management

Agency executives are turning to portfolio management to help them match information technology investments with agency goals. Many describe portfolio management as a journey, but the immediate payoffs can also be great, its proponents say. The following are frequently asked questions and answers from experts covering the basics of portfolio management.

What is portfolio management?

With IT portfolio management, senior managers can evaluate a collection of projects to see how they are performing, measure how well projects fit the organization's overall strategic plan and determine return on investment and risk level.

IT portfolio management involves the processes organization officials use "to maximize the return on every dollar they spend on IT," said John Cimral, chief executive officer of ProSight, which sells portfolio management software. It helps senior managers do more with less and make intelligent decisions about investments, which is especially important as agencies face shrinking IT budgets.

The approach is similar to managing a personal portfolio of investments to include a mix of stocks and bonds and other options, said Rich Dougherty, CEO of Expert Choice, a portfolio management software vendor. Ultimately, "we have to make investments that will balance our risk" and provide the best return on investment, Dougherty said.

Why is portfolio management important to government IT executives?

Portfolio management allows executives to survey IT investments across the entire organization. It shows them a systems inventory, redundant systems, investments in systems, investment risk and the progression of projects within the portfolio, said Wei Tang, director of portfolio management at Robbins-Gioia.

Organizations embark on portfolio management because they "don't have a comprehensive picture of expenditures," said Mike Metcalf, vice president of U.S. strategic marketing at software provider Artemis. "They don't have visibility of allocation, of how much is spent in certain areas."

Portfolio management goes beyond traditional capital planning and investment processes because it allows senior executives to "consider groups of systems together," said Paul Tibbits, director of the Defense Department's Business Management and Systems Integration. It allows them to see whether the groups of systems fit with one another and whether they help meet the department's overall objectives.

Is portfolio management a product or a discipline?

Portfolio management is a combination of tools and management practices. But without the proper processes in place, the tools aren't very helpful. It requires a certain amount of change within an organization to encourage executives to think in terms of blocks of systems rather than individual projects.

"You only have so much money to spend, and you've got to maximize the ability to spend that money," said Doug Clark, CEO of Metier, which sells portfolio management software. "It's a management discipline, [but] because the size of the data and the amount of the data [that] is being produced is so great, it has to be done in an integrated software tool."

How is portfolio management different from creating an enterprise architecture?

Enterprise architectures and portfolio management are related but different. An enterprise architecture documents or inventories an agency's IT systems. It also provides a picture of the target set of IT systems that will support the agency's future business requirements. You bridge the gap between the current and target sets by launching new IT projects, which is where portfolio management begins. Portfolio management helps justify the business case for a particular project, rather than showing how the project will be done.

An enterprise architecture "is a very important piece of this puzzle because it's an enabler of your entire investment," Tang said. Enterprise architecture "should capture not only the technical pieces of an investment but also the process." Portfolio management is a tool to help agency officials reach their target architecture.

Portfolio management is an assessment process, supported by enterprise architecture data, for groups of IT systems, Tibbits said. "In any assessment process, you are best to do this against a set of criteria," he said. The business enterprise architecture, he said, is an assessment framework used in portfolio management to make a decision about when to move forward with a project or when to make changes.

What are the core components of a portfolio management tool?

A good portfolio management tool should support several functions, Tang said. They include the ability to view and categorize an investment; rank and rate an investment based on specific criteria; capture basic data about an investment such as project descriptions; integrate with a project management tool or provide project management functionality; and support workflow processes.

To use a portfolio management tool, users must establish an inventory of their projects, identify stakeholders and decide whether the projects are justified by a good business case. They must also determine if projects overlap and whether they support the agency's goals. Then they must rank the projects within the portfolio based on priority and manage their progress.

Users don't need to be project management experts to benefit from portfolio management, said Paulo Chow, a product manager at Pacific Edge, a portfolio management software vendor. It is whether "you are deliberate about what you want to accomplish," he said. "You're doing things right, but are you doing the right things? It hits on the difference between project management, which is focused on doing things right, and portfolio management, which is focused on are you doing the right thing."

What is the return on investment?

The cost for portfolio management tools varies widely depending on the functionality of the product. But vendors and analysts contend that the return on investment can be significant. Even in the first year, portfolio management can reveal that large sums of money are being spent on pet or misaligned projects, and officials can reallocate those funds to other projects, Dougherty said.

Usually, the return on investment is greatest during the first year. "We can do a 100 percent [return on investment] in as fast as six months," Clark said. The reason, he said, is that, for the first time, an executive has a complete view of an organization's investments and can find and eliminate redundancies.

Once organization officials complete an inventory of projects, they usually find some that are nonstrategic or redundant, said Dennis Gaughan, research director at AMR Research. As a result, they can redirect about 15 percent of their IT budget into areas that are more strategic and provide a higher impact to the organization.

Who typically uses portfolio management tools?

Portfolio management is a tool for decision-makers: chief information officers, chief financial officers, their deputies and those in the program management office. Other users, Metcalf said, include those who keep and maintain the information that managers use to make decisions and the project managers spending the money.

"Portfolio management is really a team sport," Cimral said. "It is something meant to include all levels of management in the organization." The challenge is to merge stand-alone systems so that users can make data visible to others in the organization, he said.

What are some tips for getting the most out of portfolio management?

Dougherty said agencies must have senior management support, be patient and start with a digestible amount of projects to weigh. Also, develop a process before investing in a tool and make sure the process is transparent to stakeholders.

Keith Kerr, director of solutions development at Robbins-Gioia advises agency officials not to use the information gleaned from portfolio management to micromanage or second-guess decisions made at the project level.

Make sure that investment owners, such as department or program managers, validate the project information fed into the system, Tang said.

Tibbits suggests that officials look at portfolio management as a cyclical event tied to budgeting cycle. Start with a good inventory of IT assets and have those assets properly classified.

Don't allow the lower-level operational project management requirements of the organization inhibit or drive the ability to do portfolio management, which is a top-down process, Metcalf said.

Clark advises managers to pick a portfolio management product that integrates with the agency's existing processes and tools.

O'Hara is a freelance writer in Arlington, Va.