Week 8: IT Portfolio Management

MIS5001: Management Information SystemsDavid S. McGettigan

Adapted from material by Arnold Kurtz, David Schuff, and Paul Weinberg

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Agenda Prior Lecture Recap

Capturing the Business Value of Systems

IT Portfolio Management

Next Week

Prior Lecture Recap

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Prior Lecture Recap Customer Relationship Management

Brings together information regarding customers, sales, marketing, and products

Functions supported and management issues

Business Intelligence Knowledge about your customers, competitors, partners, competitive

environment, and internal operations Enables users to identify and understand the key trends and events driving

their businesses Uses and challenges

Knowledge Management Knowledge management comprises a range of strategies and practices

used in an organization to identify, create, represent, distribute, and enable adoption of insights and experiences.

Benefits, Communities of Practice, Communities of Interest

Capturing the Business Value of Systems

NOTE: This section is a primer for IT Portfolio Management which follows

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Capital Budgeting Capital budgeting is the process of

analyzing and selecting various proposals for capital expenditures. Information systems are considered long-term capital investment projects.

Types of investments: Meeting demand / enhancing profitability Meeting or enhancing compliance (Quality,

Regulatory, SARBOX, etc)

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Cost/Benefit Analysis Costs:

Hardware Software Services Personnel

Benefits: Tangible (“Hard”) Intangible (“Soft”)

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Costs and Benefits of IT Solutions

Challenge: capturing total costs

Challenge: quantifying benefits

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Budgeting Models Capital budgeting models are used to

evaluate capital projects (and hence understand the value of IT projects)

The payback method The accounting rate of return on investment (ROI) The net present value

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Payback Method The payback method is quite simple: It is a measure

of the time required to pay back the initial investment of a project.

The payback period is computed as follows:

The method ignores the time value of money, the amount of cash flow after the payback period, the disposal value (usually zero with computer systems), and the profitability of the investment.

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ROI Return on Investment

Use the present value of net benefits Compare to cost of capital and/or other projects Expressed as a percentage

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NPV Net Present Value

The amount of money an investment is worth, taking into account its cost, earnings, and the time value of money.

Expressed in dollars.

Capturing financial benefits can be straightforward, but what costs should be included in the analysis?

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Problems with Managing byCapital Budgets - TOC Consider acquisition costs and maintenance costs

The cost of “owning” a PC (or a server) can be several times more per year than the original purchase cost

Examples of maintenance costs Repair contracts Configuration

management Downtime and

lost productivity Upgrades

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Problems with Managing byCapital Budgets - Intangibles

How to quantify the intangible benefits Frequently

includes “musts” e.g. Quality and Regulatory

These intangibles prevent the capital budgeting process from being the sole effective portfolio management technique

IT Portfolio Management

Honor isn't about making the right choices. It's about dealing with the consequences.

Midori Koto

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Business Drivers Drivers for IT Portfolio Management:

Complexity Cost Cross-functional Relationships with other programs Volume

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Definition Portfolio management - a methodology for

presenting a holistic view of IT projects across the enterprise in order to ensure alignment of IT with corporate strategy

Source: www.cio.com

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Portfolio Management SEVENTY-FIVE PERCENT of companies do

not possess clear, ongoing oversight of their IT project portfolios. - AMR Research study.

Funding Optimal mix of risk and reward Better communication Strengthened alignment between IS and the

business. More efficient use of human resources Fewer redundant and overlapping projects

Source: www.cio.com

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Methodology Ensure projects appropriately linked and managed

Conduct a project inventory

Establish criteria aligned with corporate values and objectives

Classify and evaluate programs

Apply prioritization methodology

Actively manage the portfolio

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Prioritization

Value

Cost

EXECUTE

CANCEL DEFER

DEFER

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Portfolio Mgmt Exercise See class handout

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Portfolio Classifications Infrastructure

Provides shared based of capabilities for the organization, leading to greater business flexibility

Transactional Process and automate the basic transactions of the

company to reduce costs Informational

Provide info to manage the company, resulting in shorter time to market or increased quality

Strategic Usually higher risk and external facing systems result in

sales growth or competitive advantage.

Source: www.cio.com

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Portfolio Comparison

Source: www.cio.com

Cost-based PortfolioAgility Portfolio

Infrastructure TransactionalInformational Strategic

Infrastructure TransactionalInformational Strategic

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Case Study: Bound to Fail Describe the system in question (“SBS”)

What was the supportability of the system in 1997 (beginning of the case)?

What were the business conditions and “distractions” at the time?

Describe IT planning at Comair (e.g. 5-year)

What was the impact of the acquisition by Delta?

CIO.com – Bound to Fail – May 1, 2005

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Case Study: Bound to Fail How were the companies business processes

reflected in the system?

Describe the crash event. When did the crash take place? What was the root cause? What was the business impact? What was the immediate remediation plan in terms of

personnel and systems?

Brainstorm: How could this have been avoided?

CIO.com – Bound to Fail – May 1, 2005

Case Study: Volkswagen What is your assessment of the new process for

managing priorities at Volkswagen of America? Is it better or worse than the old process? Are the criticisms justified?

How should Matulovic respond to his fellow executives who are calling to ask him for special treatment outside the new priority management system? Does Volkswagen need a new selection system?

How is it possible that under this new system a “critical” project (global supply chain system) was unfunded? What should be done about that?

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Next Week

Enterprise Applications