Putting one foot in front of the other (part 6)

In a previous post, I suggested some of the fundamental, structural changes I think IT will have to undergo in the next 10-15 years. And to me, these changes are not optional: organizations will have to make them; the only question is who will risk the difficulties and step up to lead them (and reap the substantial rewards)?

With that done, I’ve come back to Earth a bit to kick off a series of more modest posts that look at some of the baby steps IT needs to take to evolve into a truly strategic capability.

To me, once an IT leader adopts the correct orientation of her department as a strategic asset primarily focused on delivering business value (rather than IT capabilities), she has  a number of very tactical areas to address:

  1. Demand pipeline
  2. Structured requirements
  3. Developer-heavy staffing
  4. Agile methods/approaches
  5. Service catalog
  6. Portfolio management (including rationalization)

In this post, we’ll take a look at the last, portfolio management.

I’ve written at length elsewhere about portfolio management, so folks interested in a more detailed treatment should start there. In this context, I simply want to scratch the surface of the distinction between portfolio management as a project management activity versus portfolio management as an asset management activity.

I’ll start by saying that project and program management are an important part of the overall IT portfolio management process. It’s absolutely critical to make sure that all in-flight IT projects and programs run smoothly, don’t step on each other’s toes, get done on time and on budget, and all the other good stuff project/program management does for an organization.

Given that, what I mean to get at by introducing the distinction between an asset management approach to IT portfolio management versus a project management one comes down to this: asset management is concerned with describing and managing the value an asset has for the organization, whereas project management is about executing work, the value of which has already been determined by the organization before the project even starts, rather than considering the value of that work itself.

At the end of the day, approaching IT portfolio management from an asset management perspective encourages long-term thinkingor at least longer term thinking than a project management approach does. Just as in a financial portfolio, where you might have assets that live for many decades (think bond maturity), IT assets have a surprisingly long life with critical value and risk implications for the organization that are often difficult to predict or express.

Here’s an example used by Russ Bostick in a recent keynote address to the Arizona IT Symposium:

When a company creates a life insurance product to sell, part of the product development process is to estimate the total cost of servicing that product, which, if the product gets sold to a 25-year-old, could include over 50 years of customer support (and even longer if the policy provides for a structured annuity to beneficiaries over their lifetime). The complexity and uncertainty in this equation, just for a single dimension like customer service, is staggering: for a policy sold in 1975, phone and paper mail were the two customer service options; round about the year 2000, these expanded to include email and internet customer portals; in 2010, options include secure chat and text messages; in 2020? Anybody’s guess. Now expand this equation to consider some of the other relevant dimensions, like payment processing, customer communication management, and regulatory compliance, and then multiply it by the total number of insurance products the company offers—short term thinking can’t possibly frame the issues the way an insurance company needs to in order to remain successful over the long-haul.

What this single example shows it that if IT portfolio management is done with a project management focus, the total cost of ownership (TCO) around customer service for the relevant assets (the applications that support the policy) would only include the costs known at the time the assets were developed—in this case, 1975. But over the expected life of the assets, the context of the TCO around customer service changes dramatically, which results in equally dramatic increases to the cost for customer service and therefore to the TCO of the assets.

Now, can IT portfolio management prevent these escalating costs? No. But it can do the next best thing: make them visible to the organization and give it some of the tools it needs to do something about them.

The final word

Over the last few weeks we’ve looked at some of the key challenges facing IT leaders heading into the second decade of the 21st century. As always, would love to hear from folks here about their own take on these (and other) challenges – let’s get the conversation started…

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2 Responses

  1. Just to add my two cents to the discussion Joe, I feel that a key aspect of proper IT portfolio management is the selection & execution of projects which match the company’s strategic objectives. I can easily recollect situations where IT resources were selfishly allocated to a project championed by the most vocal executive (“I can’t run my business without XYZ!”). Further, an IT portfolio should be managed like a financial portfolio. It should constantly be reevaluated to identify investments in IT which are failing to deliver on anticipated returns. Cut your Dogs early and continue to feed your Stars!

  2. So true, Jolanta – I’ve been at those kinds of companies as well…makes IT a much less rewarding place to be.

    Thanks for putting your two cents in–I appreciate it!

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