Portfolio Objective Alignment: Putting Your Money Where Your Mouth Is

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Robert Handler

Investments Don't Seem To Mirror Strategies or Expectations

Actual SpendingValues 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

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?

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.

Portfolio Management Is a Best Practice for Allocating and Adjusting Resources

Objectives• Retirement

• College for

kids

• Vacation

Personal Investment Portfolio

Business ActivitiesPlan Execute

IT Portfolio

Risk Return

Investments• Home Equity• Life Insurance• Cash• Retirement• Stocks and Bonds

• Vacation

Assets Projects

• Buy and Receive• Sell and Ship• Transport and Logistics• Make/New Product

Introduction

• Applications• Data and Information• Operations• Infrastructure• Human Capital

• ERP• SCM• CRM• CPFR• Collaboration• Security

IT Portfolio Management Is the Same But Different

Reflects Regular

Critical Success Factors

Key Performance Indicators

Balanced Scorecard

Stage 1Opportunity Generation, Capture and

Analysis

Stage 2Ideation

Stage 4Idea

Selection

Stage 3Feasibility andAssessment

Gate 2

Stage 5

ITDiscovery

Phase

Gate 3

Gate 4

Gate 5

Gate 6

Gate 1

Enterprise Business Objectives

Business Unit Objectives/Requirements

Enterprise Strategic Intent

IT Plan (IT Policies, Principles, Road Map, etc.)

Requirements

EnterpriseArchitecture

Business/CompetitiveIntelligence

Reflects RegularStatus Reviews

Stage 5Concept

MaturationGate 6

Gate 2

Gate 3

Gate 4Gate 5

Gate 6

Gate 1

Stage 1Scoping/

Preliminary Analysis

ITProject Phase

Stage 2Build

BusinessCase

Stage 3Development

Stage 4Test andValidation

Stage 5Launch andImplement

Gate 2

Gate 3 Gate 4

Gate 1

ITAsset Phase

Stage 1Successful

Launch

Stage 2Post-Launch

Review

Stage 3Life Cycle

ManagementAsset TransformationDiscovery Proposals

New Modified Assets

Asset TransformationProject Proposals

Approved and Mature Concepts

Source: "IT Portfolio Management Step-by-Step:

Unlocking the Business Value of Technology,"

Bryan Maizlish and Robert Handler, John Wiley & Sons, New Jersey, 2005

There Is a Process for Doing Portfolio Management

Develop PfM Game Plan

Plan Portfolio

Create Portfolio

Portfolio Governance

and Organization

Assess Portfolio

Portfolio

Assess PfMProgramExecution

BalancePortfolio

CommunicatePortfolio

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

Investment Categories Are Like Budget Categories

Budgets

- A list of all planned expenses and revenues

- Illustrates trade-offs between two or more items

VacationsVacationsJewelryJewelry

College College FundFund

RetirementRetirement

- Requires estimating value of competing items

- Serves as a financial plan to allocate funds in support of multiple objectives

Like budgets, investment categories help you decide how to spend before you spend.

Investment Categories Align Big Dollar Objectives With Actuals

• Determine business objectives

• Identify risk/reward levels for the organization

Investment Portfolio

Dis

cre

tio

nary

Pro

jects

VentureVenture

Growth

DiscretionaryEnhancements

TTB

GTB

Fro

nti

er

En

ha

nc

em

en

t

• Determine management approaches

• Identify the types of metrics that are relevant

No

nd

iscre

tio

nary

C

osts

Risk

Dis

cre

tio

nary

Pro

jects

Enhancements

Non-Discretionary

CoreCoreRTB

En

ha

nc

em

en

tU

tili

tyIn

fra

st.

"The perfect is the enemy of the good."— Voltaire

The Real-World Impact of IT Portfolio Management: A Case Study

$124$36

$695

$194

$499

$460

Total HardwareCapital

TTB Low Risk

TTB High Risk

$2,524 Million

$2,163 Million

$1,856 Million($196)

($158) ($39)

($11)

$688 Million Reduction from 2000 Actuals

The Results of IT Portfolio Management at a Large Telecommunications Firm After 6 Months

$1,074

$138

$457

$912

$73

$383

$102

$194

$100

$822

$45

$246

$183

$460

2000 Actuals 2001 YTD 2001 Recast

TTB Med Risk

RTB Non Disc

RTB Core

($22)

($74)

($65)

($162)

($11)

($137)

($2)

($28)

($90)

Target Total Cash Outlay Reduced by 26% Year-to-Year (1).

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• Compare actual to desired

• Balance

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"

Plan Portfolio Investment Strategy

• Plan investment strategy

• Plan portfolio structure

• Plan individual subportfolios

Investment Categories

Dis

cre

tio

nary

Pro

jects

VentureVenture

Growth

DiscretionaryEnhancements

TTB

GTB

Fro

nti

er

En

ha

nc

em

en

t

subportfolios

No

nd

iscre

tio

nary

C

osts

Risk

Dis

cre

tio

nary

Pro

jects

Enhancements

Non-Discretionary

CoreCoreRTB

En

ha

nc

em

en

tU

tili

tyIn

fra

st.

Plan to stakeholder decision-making needs and objectives

Build Actual Portfolio

• Populate portfolio

• Identify expected risks and returns

• Define metrics

High

BusinessValue

Portfolio View

• Build portfolio views

Low

Value

Investment Category

Run Grow Transform

Build to stakeholder decision-making needs and objectives

Compare Actual to Desired

• Monitor for triggers- Gates- Thresholds- Temporal

• Measure portfolio• Compare metrics against • Compare metrics against

targets

Here, we essentially check budget to actual for the entire plan

Balance the Portfolio(s)

• Identify options

• Determine tradeoffs

• Select changes

• Implement changes

Proposed

Change

ProjectsAssets Projects

Transact-ional

Storage

SANFileSystem

Integration

Content

Presentation

HTML

Portal

Platform

Database

OLTP R/O

Green: Currently in good condition

Yellow: Currently needs work, but not urgent

Red: Currently in bad shape, urgent change needed

Gray: Not yet needed or not yet measured

Windows Unix MainframeLinux

Transact-ional

Storage

SANFileSystem

Integration

ContentContent

Presentation

HTML

Portal

Platform

Database

OLTP R/O

Green: Currently in good condition

Yellow: Currently needs work, but not urgent

Red: Currently in bad shape, urgent change needed

Gray: Not yet needed or not yet measured

High

BusinessValue• Implement changes

ESA Solution

Portfolios Project Portfolios

Changed

Assets

System

Integration

Analytic

Security

Identity Permission Isolation

Network

LAN WANRemoteAccess

Presentation

Device

Desktop

System

Integration

AnalyticAnalytic

Security

Identity Permission Isolation

Network

LANLAN WANWANRemoteAccessRemoteAccess

Presentation

Device

Desktop

Low

Investment Category

Run Grow Transform

Balancing becomes easier when you have a predefined goal

Recommendations

� Identify goals and objectives of the organization

� Identify risk tolerance of organization

�Create candidate investment categories

�Budget candidate investment categories�Budget candidate investment categories

�Compare actual to budget

�Adjust

Recommended Gartner Research� Six Steps to Keeping Basic Portfolio Management

BasicRobert Handler (G00239516)

� Don’t Wait: Three Simple Project Portfolio Management Scenarios and SolutionsMichael Hanford & Robert Handler (G00232097)

� Project Portfolios and the Case for Contingency: In � Project Portfolios and the Case for Contingency: In Fact, a Lot of ContingencyRobert Handler (G00239516)

� Why People Make Irrational Decisions, and How PPM Leaders Can Deal With ItRobert Handler (G00205810)

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