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Risk &




Number
Name




Risk &
Name




# Application Investment $ 0,000 4 180
# Application Investment $ 0,000 4 180
# Application Investment $ 0,000 5 160
# Application Investment $ 0,000 5 160
# Application Investment $ 0,000 3 140
# Application Investment $ 0,000 3 140
# Application Investment $ 0,000 5 100
# Application Investment $ 0,000 5 100
# Application Investment $ 0,000 3 14
# Application Investment $ 0,000 3 14
# Application Investment $ 0,000 1 5
# Application Investment $ 0,000 1 5
TOTAL $ 0,000 Avg Avg
TOTAL $ 0,000 Avg Avg




Portfolio Management Integrates the NIE Practices
A common Portfolio Management template coordinates the information across
NIE practices and provides the linkage to other management processes such as
annual planning and budgeting.
Exhibit 4.13 shows the relationship of individual NIE practices and the port-
folio management template. Briefly, each NIE practice description found else-
where in this book, defines the information needed and the analysis that is done.
Alignment, for example, operates on the connection between applications and
the company™s strategic intentions. It also considers the technology assessment
for the application, whether obsolete, requiring renewal, and so forth. Similarly,
prioritization defines the connection between a project and the company™s
strategic intentions.

PRACTICAL PROBLEMS IN APPLYING
PORTFOLIO MANAGEMENT
The most critical practical issues have to do with the definition of the contents
of the portfolios. For example, for applications this would seem simple: the
63
Practical Problems in Applying Portfolio Management


EXHIBIT 4.13 Portfolios Used in NIE Practices

Basic Information Service and Risk and Value/State
Quality Uncertainty




Responsiveness




Organizational
Functionality
This table shows how




Assessment
Technology
Availability




Alignment
Technical
each NIE practice




Accuracy




Business




Strategic
Project
provides and uses
information from




ROI
Portfolio Management

Demand/Supply
XX X X X X X
Planning

Innovation
X X X

Prioritization
X X X X X X

Alignment
X X

Performance
XX X X X X
Measurement




lights-on applications portfolio consists of all the applications. One key issue,
however, is the level of detail, or granularity. Most companies could, if the level
of detail were at a low level, have 500 applications. This is not workable or
meaningful. Similarly, for applications, should the portfolio contain applications
supported by others than the IT organization (e.g., by the individual business
units) or by individuals (e.g., local applications.) The problem, then, is to decide
what the appropriate level and coverage is for each portfolio.


Practical Problem in Lights-On: Choosing the Portfolios
and Line Items
For most companies, the lights-on portfolios consist of four basic areas:

Applications The complete set of user applications maintained and operated
by the IT organization. The costs assigned to the portfolio
include the management and staff devoted to applications.
Infrastructure The hardware and software platforms that provide services
to users. Includes all processors, peripherals, communications,
operating software, as well as facilities. The costs assigned to
64 UNDERSTAND COSTS AND RESOURCES


the portfolio include the management and staff devoted to
infrastructure.
Services Services and support provided to users, such as help desks and
PC repair. This portfolio excludes services to support the IT
organization itself. These services can be available at the request
of a user, or be a regularly provided and scheduled service avail-
able to all users. The costs assigned to the portfolio include the
management and staff devoted to services.
Management The management and service activities that support the IT orga-
nization in its provision of services, infrastructure, and appli-
cations to users.

The key is to include 100 percent of the lights-on costs. All of the operat-
ing budget, excluding projects, should be accounted for in the portfolios. Exam-
ples of line items that might be included in portfolios are shown in Exhibit 4.14.
The data contents for the portfolios were described in previous sections of this
chapter, with the Portfolio Templates.


EXHIBIT 4.14 Examples of Line Items
Portfolio Category of Line Items Example of Line Items
Applications Centrally managed applications Payroll
Business unit managed applications Sales information
Individual user managed applications Financial analysis
Infrastructure Application Development Support Application development
environment and tools
Infrastructure-delivered service E-mail
Data management Warehouse
Networking Network facilities
Infrastructure Management Management tools, information
Platform Hardware and software
Services Services provided to users (does not include Data administration
services internally consumed within the IT
Help Desk
organization)
Break/Fix
Trouble Ticket Management
Network Monitoring
Training

Management Services or activities consumed within the IT Budgeting/Finance
organization
Enterprise Architecture
Planning
Procurement
Employee development
65
Practical Problems in Applying Portfolio Management


Practical Problem: Working with Portfolio Information
to Make the Right Decisions
The five NIE practices apply the portfolio information. However, the practical
problem is what to do with the information. Although this is also tied up in
applying the NIE practices, the problem is common to all of them. The issue is:
Will having the information support management decisions, and will those man-
agement decisions “take hold” with respect to the use of IT in the enterprise?
Our purpose, again, is to control IT spending and improve IT™s bottom-line
impact. Practices such as Prioritization produce rank-ordered project portfolios;
practices such as alignment produce rank-ordered applications, infrastructures,
and services, including assessments of quality and service levels. But managers
may still ask “So what? What does all of this information mean to me?”
This is a critical connection issue. Will the use of portfolio information, that
supports decisions, actually penetrate to budgets, and to IT management prac-
tices, and to IT user expectations? We pose this connection issue as the basis of
the Strategy-to-Bottom-Line Value Chain. Decisions enabled by portfolio infor-
mation in strategic planning, or in annual project planning, or in budgets, must
connect to the right actions, in order to effectively control IT spending and to
improve IT™s bottom-line impact. These actions include budget decisions, appli-
cation abandonment or renewal decisions, project selection or abandonment/
deferral, and the like. Making this happen is the key challenge, which will be
raised consistently in each of the subsequent chapters.
For example, consider the lights-on applications portfolio for a financial
services company. Through the Alignment Assessment practice (see Chapter 8),
the applications are assessed according to “dependency” (Are the applications
actually used?) and quality (Is the information the applications provides accu-
rate? Is the application available when needed? and so forth). Through the appli-
cation portfolio, personnel costs required for operations and support, and the
computer processing costs are assigned to each application. With this assess-
ment, a management team can consider investment strategies, as shown in Exhibit
4.15. (Details of the scoring are described in Chapter 8.)
As a result of the analysis, the portfolio can be portrayed as shown in
Exhibit 4.16, including the cost of the applications. Portfolio analysis identifies
the applications for which management action is possible. By identifying the
applications (in this example, in the “crisis” category $8 million is the annual
operating cost for support personnel and computer costs; six applications are
included in this category), management can take action to abandon or invest in
improvement. By doing so, the business processes that use the application will
benefit, and the impact on the bottom line will increase.10
But, and this is a large but, if management does not take action, then the
analysis of the lights-on application portfolio is useless. Getting management to
see the opportunities and take the required action is the key problem. (Some of
the issues involved in generating management action will be considered within the
specifics of the NIE practices, in Chapters 8, 9, and 10. Chapter 13, in describ-
ing IT Impact Management, offers methods for responding to the problems.)
66 UNDERSTAND COSTS AND RESOURCES


EXHIBIT 4.15 Sample Investment Strategy
Category Investment Strategy
Abandon: Applications should be abandoned.
Dependency is low
Crisis: Applications are candidates for investment to improve quality,
Dependency is high (4,5) especially with high dependence.
and Quality is 2 or less
Noncritical, Stabilize: Dependence is moderate. Spend as little money on
Dependency is moderate (3) maintenance and enhancement as possible.
Improve Only as Needed Although dependence is high, quality is adequate. Spend
Dependency is high (4,5) money only in emergency or as resources are left over.
and Quality is moderate (3)
Excellent, Monitor Monitor applications for quality issues. Spend money to
Both Dependency and maintain quality levels, but new investment is likely not needed.
Quality are 4 or 5

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