One of the secrets to maximising the value of your IT budget is to
treat it as an investment portfolio.
Like all investments, IT spend is risky - there is no guarantee of
success. Some will pay off, some will not.
Like most good ideas, portfolio management has been around for many
years. It means treating your projects as an investment portfolio,
and grouping individual projects according to their primary
business objective, or value (for example, customer retention,
sales growth or cost reduction). There are real benefits to be had
from this approach, especially if it is used to manage all business
investments, not just IT.
For a start, it creates an investment plan that people can discuss
in purely business terms. They don't need to know about technology
to decide how much to invest in a given business objective. IT
planning can become a truly collaborative process. It also helps
everyone prioritise projects based on relative cost, value and
risk, within each grouping and across the entire portfolio.
Managing investments as a portfolio helps cut wasted investment and
ensures that projects don't double-count benefits. I once worked in
a company where a number of projects were promising to improve
customer retention. When we added them together to create a
portfolio, we found that the total number of customers that they
expected to retain exceeded the number they were losing. Each
business case looked fine on its own, but nobody was managing the
overall investment in customer retention or checking that the value
and risk was worth the total cost.
A portfolio approach helps everyone to identify common themes and
economies of scale across the investment plan as a whole. It also
provides a business framework for assessing the potential of
technology trends and driving suppliers to deliver to your
agenda.
Investment portfolios can be created bottom-up or top-down. A
bottom-up portfolio builds groupings out of your existing projects.
A top-down approach starts by assigning investment to business
objectives and then determining the best portfolio of projects in
which to invest.
Building a bottom-up portfolio is typically a one-off activity.
Each project may be trying to deliver to a number of objectives,
making it difficult to build a "clean" portfolio. So your first
step will probably be to create a matrix that shows the complex
links between your existing projects and the overall business
objectives.
A practical place to start is a simple spreadsheet with the
business objectives listed on one axis and IT projects on the
other. With the help of your project teams, place a tick where
there is a link and you will quickly start to see how well the
business objectives are being delivered. The next stage, when
things can start to get more complicated, is to replace those ticks
with investment money.
Once the initial portfolio is created, and people start to
understand the benefits of the technique, it is usual to switch to
a top-down approach.
Either way, the objectives that drive the portfolio must come from
your business strategy. It is also vital that the IT investments
are seen as just a subset of the wider investment plans. Nobody
should be taking IT investment decisions in isolation of their
impact on the business plan as a whole.
Chris Potts is a director at IT strategy consultancy.