Now consider the asset allocation model as applied to business investment planning, specifically within IT. Here the set of goals might be revenue growth, cost reduction, regulatory mandate, and business continuation. Simply answering how much of the overall IT capital and operating budget should be allocated to each of these is an executive-level question of considerable depth, requiring evaluation of strategic priorities, planning horizons, capital allocation, criteria, and so on. As with financial portfolio planning, the evaluation of specific assets and projects within each category occurs only after the determination of how much to invest in each category. And portfolio analysis doesn't stop with goal alignment. The portfolio must also be analyzed by a variety of other criteria, including risk, strategic alignment, and expected return, among others.
Contrast the asset allocation model with how IT planning is often done: individual projects, systems, and initiatives are approved or rejected in the abstract, with little analysis performed or considered as to their impact on the portfolio as a whole. It is bottom-up, in contrast to classical strategic management, which is top-down. It is no wonder that the results appear, and often are, chaotic.
While an asset allocation model can point the way to the future, it first requires a high-level yet current portfolio inventory, no small matter in a large IT shop. An IT portfolio inventory sufficient for planning purposes need not be exhaustive. Rather, it should characterize at a macro level everything that must be considered when drawing up the IT portfolio plan: applications, physical assets, projects (ideally grouped into programs or initiatives), infrastructure assets (such as networks and bandwidth), and resources (internal, contracted, and outsourced). These classes of portfolio items are what give rise to various forms of portfolio management, such as application, asset, and project portfolio management, all of which are related.
Initial IT portfolio inventories often reveal copious and expensive redundancies, such as an insurance company with eleven billing systems, a manufacturer with four accounts payable AP systems, and a financial services provider with seven customer portals. Portfolio management projects often stop at this point, however, as the new visibility of these redundancies triggers a system or asset rationalization program that can be expected to save millions of dollars all by itself.
But the march of progress never stops. New projects are always knocking at the door. Examples include a fast-growing division with a major new business initiative that must be enabled, another division that is being spun off, yet another that is being acquired. IT will be called on to respond, for none of these can succeed without it. No one, least of all the CIO, wants IT to be the roadblock to strategic imperatives. And so implementing portfolio management gets pushed to the following year, or maybe the year after that.
To make sure savings are realized, respond effectively to dynamic circumstances, and keep IT aligned with the business, a system is required: a portfolio management system. Such a system provides comprehensive IT portfolio modeling and macro inventorying, analysis (by goal, risk, status, budget, expected return, and so forth), and scenario planning. Importantly, the portfolio management system must seamlessly link to the systems that drive controlled delivery of the tactical programs that are derived from the investment planning process. Otherwise the strategy may become undone by poor execution.
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