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structure, services (such as help-desk), and management provide the framework
for Planning, Innovation, Prioritization, Alignment, and Performance Measure-
ment.
There are, however, some practical problems to consider when using
portfolio management for the entire IT spend. First, for companies with both
corporate IT and line-of-business IT, does portfolio management cover the
decentralized IT as well? Ideally, yes, but the practical problem of governance,
organizational relationships, and so forth complicate this. Second, what about
decentralized IT spend at the level of workstations, locally-developed applica-
tions, and so forth? Whereas portfolio management offers tools for insights into
the pattern of IT expenditures company-wide by capturing information from
decentralized as well as centralized IT activities, the culture and organizational
relationships may complicate this. Third, does outsourcing become a part of the
portfolios? The answer, ideally, is yes.
In all these cases, portfolio management can be a very powerful tool for
maintaining information about applications and infrastructures throughout the
enterprise, without respect to the varying organizational and governance issues.
Whether this is practical and/or possible is dependent on the specific company
circumstances.
57
Four IT Portfolio Concepts


Concept 2: IT resources are divided into new investment and lights-on expendi-
tures.


The new investment category is projects, including both capital and expense
budgets. The funds are to be invested in terms of projects or new hardware/
software acquisitions.
The lights-on expenditures category is the existing set of applications, infra-
structure, services, and management activities. From a budget perspective, these
can be thought of as the “Base” budget.
This separation permits differing kinds of analysis. For the lights-on cate-
gory, for example, the analysis focuses on the service, quality, and connection
to business strategies. For the lights-on application portfolio, the analysis asks
about the current condition of the application (is it obsolete, does it continue
to support the current business strategies, is the company continuing to get value
from it?). Just like a financial investment portfolio, we™re interested in whether
each resource should be kept, disposed of, or renewed. See Exhibit 4.7.
For the new investment category, the analysis focuses on the connection
to business strategies and the bottom-line impact of the investment. For exam-
ple, does the proposed new application directly support the business strategy?
Will the business return be sufficient to justify its investment? Like a prospec-
tive financial investment, we™re interested in how each proposed investment



EXHIBIT 4.7 Total IT Resources Divided into Portfolios
NEW INVESTMENT PORTFOLIOS RANKING



New Investment
Value: Technology,
Strategic, ROI




Portfolio
Uncertainty
Consumed
Resources
Number




Risk &
Name




Total IT
# “Strategic” Investments $ 0,000 4 180
Resources # “Factory” Investments $ 0,000 5 160
# “Support” Investments $ 0,000 3 140
# “Manageability” Investments $ 0,000 1 120
TOTAL $ 0,000 Avg Avg
15%
85%


ASSET/COST PORTFOLIOS RANKING
Value: Technology,
Strategic, ROI
Quality Levels
Service and
Consumed
Resources
Number




Current
Name




Lights-On # Application Assets/Costs $ 0,000 4 180

Portfolio # Infrastructure Assets/Costs $ 0,000 5 160
# Service Assets/Costs $ 0,000 3 140
# Management Assets/Costs $ 0,000 1 120
TOTAL $ 0,000 Avg Avg
58 UNDERSTAND COSTS AND RESOURCES


measures up compared to the alternatives to which the resources could be
devoted. We are asking: Is this the most valuable possible investment?
To summarize: for the new investment portfolios, the important concern is
prioritization and allocating resources to the respective portfolios; for the lights-
on portfolios, the important concern is the alignment of the resources to the
business, and the performance of those resources, in terms of service and qual-
ity, and technology obsolescence.8


Concept 3: Lights-on expenditures are classified from an IT perspective, in port-
folios related to technology management.


All IT lights-on resources and expenditures are classified into (1) applications,
(2) infrastructure, (3) services, and (4) management portfolios (resource pools).
Applications are operated and supported for the use of business organiza-
tions; infrastructure is provided to support applications and services, and serv-
ices are extended to business organizations. All of these can be assessed as to
service, quality, technical quality, and so forth. Both ongoing lights-on expenses
and new investments in lights-on categories, such as application, enhancements
and infrastructure upgrades, are classified into the four portfolios™ categories.
By adopting a portfolio view of the management resources and services associ-
ated with IT, we clearly identify what is being managed in IT and, more impor-
tantly, what is being supplied to the business through IT. See Exhibit 4.8.
There can be practical problems in defining exactly what should appear
in each portfolio. In services, this typically includes help desks, workstation
installation and repair, and consulting. In applications, the full set of developed
and acquired applications is included, although the dividing line between infra-
structure and applications can be blurred. (For example, e-mail may be included
in infrastructure, but functions delivered through e-mail or groupware, such as
time reporting, may be considered an application. In fact, it doesn™t matter too
much whether e-mail is classified as an application or as infrastructure. What
does matter is that e-mail is included in one of the portfolios and, therefore,
subjected to the analysis and management scrutiny that portfolio management
and NIE affords.) Infrastructure is the communications, platforms, and software
needed to support applications and services. Management is the set of activi-
ties ” such as planning, budgeting, and HR” for the IT activities.
We should not lose sight of the objectives. First, we want to account for 100
percent of the IT activity. Second, we want to group similar items into suitable
portfolios in order to permit management analysis of the line items and the port-
folio as a whole. Above all, we want the portfolios to be meaningful to manage-
ment. Overall, the purpose is to afford management a way to easily understand
and analyze the current expenditures and future investments in IT. Categorizing
them into applications, infrastructures, services, and management is a proven
way to accomplish this.
59
Four IT Portfolio Concepts


EXHIBIT 4.8 Four Lights-On Portfolios
ASSET/COST PORTFOLIOS RANKING ASSET/COST PORTFOLIOS RANKING




Value: Technology,




Value: Technology,
Strategic, ROI




Strategic, ROI
Quality Levels




Quality Levels
Service and




Service and
Consumed




Consumed
Resources




Resources
Number




Number
Name




Name
# Application Assets/Costs $ 0,000 4 180 # Application Assets/Costs $ 0,000 4 180
# Infrastructure Assets/Costs $ 0,000 5 160 # Infrastructure Assets/Costs $ 0,000 5 160
# Service Assets/Costs $ 0,000 3 140 # Service Assets/Costs $ 0,000 3 140
# Management Assets/Costs $ 0,000 1 120 # Management Assets/Costs $ 0,000 1 120
TOTAL $ 0,000 Avg Avg TOTAL $ 0,000 Avg Avg


APPLICATIONS SERVICES
PORTFOLIO PORTFOLIO
10%
40% 20%
30%


MANAGEMENT
INFRASTRUCTURE
PORTFOLIO
PORTFOLIO

ASSET/COST PORTFOLIOS RANKING
ASSET/COST PORTFOLIOS RANKING




Value: Technology,
Value: Technology,




Strategic, ROI
Quality Levels
Strategic, ROI
Quality Levels




Service and
Service and




Consumed
Resources
Consumed
Resources




Number
Number

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