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Quality




Alignment
Current Budget




Service Level
82
44 15 97-10 Flexible Scheduling Mngr
97-22 Paint Shop Area 85 Strategic
79 Requirements
30 44 97-02 TimekeepingScheduling
97-10 Flexible 82 Efficiency
APPLICATIONS
72 Intentions
66 30 97-11 FLEX Front End
97-02 Timekeeping 79 (Business 2.43 1.45 2.11 $5 +
Order/Purchase
68
100 66 97-20 Maint Management
97-11 FLEX Front End 72
65
12 100 97-24 Component Verification
97-20 Maint Management 68 2.29 2.55 2.45 $40 +
Financial Systems
Processes)
61
5 12 97-21 Manufacturing Support
97-24 Component Verification 65 2.15 1.03 2.33 $30 -
CRM Warehouse
33 5 97-23 RealManufacturing Support
97-21 Time Measurement 60 61
2.00 0.09 0.45 $1 +
HR Service Level
44 33 97-18 Quality Information
97-23 Real Time Measurement 56 60
2.00 1.11 1.02 $20 -
Manufacturing
10 44 97-06 Throughput Analysis
97-18 Quality Information 53 56 • Availability
8 10 97-12 Integrated Scheduling
97-06 Throughput Analysis 50 53 1.75 2.99 2.76 $100 ++
Production Planning
5 8 97-08 Purchasing, Inventory
97-12 Integrated Scheduling 47 50
1.65 1.45 1.11 $5 ++
Recruitment
16 5 97-04 Facilities Graphics
97-08 Purchasing, Inventory 30 47
0.15 2.33 2.45 $50 -
Intranet/Extranet
30 29
16 97-13 Synchronous Material
97-04 Facilities Graphics 30
Portfolio
20 27 Services Infrastructure
30 97-19 Device Support Material
97-13 Synchronous 29 Quality
5 24
20 97-03 Controlled Access
97-19 Device Support 27
Alignment
10 18
5 97-09 Consumer Label
97-03 Controlled Access 24 • Functionality
10 17
10 97-01 Plant Allocation Label
97-09 Consumer Status 18
5 4
10 97-05 Energy Reporting Status
97-01 Plant Allocation 17
5 97-05 Energy Reporting 4



Performance
Alignment
Measurement




53
Visioning:
What
Can We Do?
IT Demand IT Supply

Performance Management and Measurement


IT Strategic Plan




Alignment
Current Budget




Service Level
Quality
Future Budget




Enterprise Monitoring What
: Business Choices:
Annual
Part I: Part II: APPLICATIONS
Strategies Plans
Demand Supply
Impact Impact Impact
and Plans 2.43 1.45 2.11 $5 +
Order/Purchase are the changes What
The The
2.29 2.55 2.45 $40 +
Financial Systems
Strategic IT
affecting us? Should We Do?
Role of IT Function
Business 2.15 1.03 2.33 $30 -
CRM Warehouse
Aligned Aligned Aligned
Units
Strategies Strategies Annual 2.00 0.09 0.45 $1 +
HR
and Plans and Plans Budgets
Strategies
2.00 1.11 1.02 $20 -
Manufacturing
and Plans
1.75 2.99 2.76 $100 ++
Production Planning
1.65 1.45 1.11 $5 ++
Recruitment
Portfolios and Portfolio Management
0.15 2.33 2.45 $50 -
Intranet/Extranet
Actionable:
What
Will We Do?
Demand/Supply
Planning Portfolios Innovation
54 UNDERSTAND COSTS AND RESOURCES


Each NIE practice makes extensive use of portfolio information. For exam-
ple, the planning practice uses the assessments of quality and service, and the
bottom-line impact of the lights-on applications portfolio, to develop the IT
strategic plan. Portfolio management also, and perhaps equally as importantly,
connects the NIE practice outcomes to the annual planning and budgeting
processes of the company.
This is a core part of NIE. We believe that the outcomes of NIE practices
must affect the behavior of the IT organization and the company; this can only
be done if budgets and annual plans are directly affected. Portfolios and port-
folio management make this possible.7

Applying Portfolio Information in NIE Practices
By using portfolio information, applying NIE tools such as Prioritization, Align-
ment, and Performance Measurement, management can make effective invest-
ment decisions.
Portfolio information can be used to give management understanding of IT
investments and enable decisions about the investments. In this way, the NIE
practice for the use of portfolios most closely mimics the financial investment
origins of portfolio management.
Putting IT resources into portfolios permits management to analyze the
line items within the portfolios using the portfolio management tools in Right
Decisions/Right Results. For example, by characterizing line items in the appli-
cation portfolio (in the lights-on budget) by quality and service levels, manage-
ment can determine the highest and lowest quality and service level applications.
This provides the input to management decision-making about renewing or
abandoning applications.
Portfolio information enables management to:

Prioritize new investments.
Understand the allocation of resources in both new investments and in
ongoing lights-on expenses.
Set targets for resources in the lights-on budget, in terms of service and qual-
ity and in terms of cost and cost reduction.
Evaluate the performance of portfolio elements.
Cull the lights-on portfolios of low-quality or poorly performing or overly
costly elements.
Establish strategy for the renewal of lights-on portfolio elements.

By doing these things with portfolios, managers avoid case-by-case assessments
by using the same rules for all elements. By using IT portfolios and NIE prac-
tices (as described in the next chapters), management can determine whether:
55
Portfolios in NIE Practices


The IT resources applied are at the right level.
Any applications, services, or infrastructure elements need renewal or elim-
ination.
The set of investments in IT match the current needs of the business.
The set of investments serve its long-term strategic intentions.
The mix of investments in the portfolios are reasonably balanced with regard
to service and quality.
Some IT resources are underperforming.


Portfolios and Resource Pools in the Complete IT Spend
We want to be clear in our vocabulary and usage of “portfolios” and “resource
pools.” (This vocabulary and usage is described in detail in the “Four IT Port-
folio Concepts” below.)
In the NIE context, a “portfolio” is a collection of similar items, grouped
together for reporting purposes. The portfolio is a convenient and powerful way
to categorize IT resources so that management can see an holistic picture of all
of the resources focused in a particular area of IT.
The complete IT spend consists of development/enhancement projects and
the ongoing lights-on expenses. We place the development/enhancement proj-
ects in one portfolio, and then may classify individual line items within the over-
all project portfolio for reporting purposes. These categories can use terms like
“strategic” and “business infrastructure.” These portfolios are subsets of the
overall development/enhancement project portfolio.
We place the ongoing lights-on IT resources in four basic portfolios of appli-
cations, infrastructures, services, and management. Added together, these four
portfolios equal the total lights-on budget. We perform alignment, technical,
service-level, quality, and intensity-of-use assessments on each portfolio. As in
the project portfolio, we may also classify individual line items within those four
portfolios using terms like “strategic” or “business infrastructure.” (Website
Note 17 on this book™s website suggests a number of alternatives for these line-
item portfolio classifications.) These reporting portfolios are subsets of the over-
all four lights-on portfolios.
When we talk about “resource pools,” we are referring to the set of IT
resources that are dedicated to supporting each of the portfolios. Whereas the
portfolio is a classification and reporting tool, the resource pool is the element
on which analysis is done. For example, how much of the application resource
pool is focused on the least valuable applications? How much money is being
spent on the applications resource pool? Can we move resources into higher-
value activities?
56 UNDERSTAND COSTS AND RESOURCES


In summary, the portfolio is a reporting tool for similar line items, while
the resource pool supports the portfolio line items.


FOUR IT PORTFOLIO CONCEPTS
Four concepts describe the application of portfolios to IT: (1) Portfolio manage-
ment applies to the entire set of IT resources; (2) IT resources are divided into
new investment and lights-on portfolios; (3) lights-on expenditures are classified
from an IT perspective, in portfolios related to technology management; and (4)
the New Investment portfolios are classified from a business perspective, similar
to financial investments.


Concept 1: Portfolio Management applies to the entire set of IT resources.


100 percent of the IT resources, including operating and capital budgets, are
included in IT portfolios. IT Portfolio Management applies to all IT, not just
application development.
Most current industry practices limit the role of portfolio management to
the new application development and infrastructure development projects for
the company. This, however, is often a small percentage of the total resources
devoted to IT. While this is useful for new projects, it limits the power of port-
folio management to a small portion of the total IT spend.
For the five practices used for Right Decisions/Right Results, IT portfolios
represent all IT activities within the company. Portfolios for applications, infra-

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