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Aligning Business with IT through IT Portfolio Management and IT Governance
Portfolio Management is also known as :
Project Management,
Investment Management,
Systematic Management,
Portfolio Management Corporation,
Asset Management,
Project Portfolio Management,
Product Portfolio Management,
Financial Portfolio Management,
Management Process,
Corporate Portfolio Management,
Portfolio Management Practitioners,
Management Resources,
Management Resources,
Portfolio Management Tools,
Portfolio Management Philosophy,
Portfolio Management Executive,
Portfolio Management System,
Application Portfolio Management,
Portfolio Management Solutions,
Portfolio Management Discipline,
INTRODUCTION
In a highly competitive global economy, where business uncertainties are frequent and
compliance with multiple regulations is mandatory, organizations face a challenging task in
keeping pace with changing business trends. In this situation, the primary challenge is to
keep the IT organization synchronized with the business strategies to ensure deliverance
of maximum business value while reducing IT cost.
However, with multiple IT applications that require continuous pruning and monitoring, and
multiple projects running simultaneously, organizations find it difficult to focus adequate
attention on their IT application and project portfolios. Most CXOs also have a limited
insight on projects executed and the "value" these projects bring to the business.
This paper describes the importance of an IT Portfolio Management (ITPM) framework,
which when coupled with an IT Governance (ITG) framework can enable organizations to
improve visibility into projects and IT assets keeping them aligned to business objectives
at all times. This paper also recommends the approach organizations must take for
building the foundation for this combined framework that ensures constant alignment of
business with IT.
THE CHALLENGES OF ALIGNING BUSINESS WITH IT
With lack of a proper governance framework, many organizations today do not have
adequate visibility into their IT assets. The problem is compounded when organizations
are not able to trace and track projects existing in their project portfolios. The result is
skewed decisions, unwarranted spending and a continuous struggle to meet business
demands and user expectations. Another crippling factor is the fact that most CIO's do not
have an adequate mechanism in place to find out the return on investment and the risks
involved.
Figure 1: IT decision maker view of the application landscape
The typical IT landscape of most large organizations (as shown in Figure 1) represents a
portfolio of applications that has over time, become large and unwieldy to monitor. As a
result, most organizations often find it difficult to give information that is vital for ensuring
alignment of business operations with IT. For instance, organizations often find it difficult to
identify: which applications are eating up more IT resources, which projects need the
maximum funding, or, which projects should get the maximum priority?
The inability of the organization to provide information that can ensure IT and business
alignment can be nailed down to a few key causes:
- Inadequate visibility into the application portfolio
- Inadequate processes in place to continuously monitor and measure an
application fit for a business
- Lack of adequate metrics to measure the success of projects
- Time, energy and resources drained into maintaining legacy applications,
leaving little for value enhancing initiatives.
CIOs striving to achieve synchronization with business are plagued with issues such as
ever increasing infrastructure and maintenance costs, growing complexity of their IT
infrastructure, and keeping pace with the ever-changing business demands. It has been
observed that around 80-90% of the total IT spent is on maintaining the "non value-add"
applications. This means that only 10-20% of the total IT budget is available for new
initiatives/projects. In such a scenario, the CIO cannot address the issues that he/she
faces. To overcome this challenge, the CIO has to ensure that the ratio is brought down so
that more funding goes towards value-added work.
The lack of alignment of IT with business causes the business to distance itself from IT. IT
is seen as a service provider rather than a partner. As a result, IT involvement in key
business decisions becomes an afterthought rather than a prerequisite. For ensuring
alignment of IT with business, organizations have to ensure that IT assets be accepted as
business assets.
COMPONENTS OF A TYPICAL IT PORTFOLIO
An IT Portfolio consists of IT assets and Projects. Projects represent investment towards
creating assets. The assets comprise business applications and infrastructure.
Infrastructure assets comprise entities such as servers, desktops, storage solutions,
infrastructure management solutions and networks. For purpose of simplicity, we will
consider information assets as that which include the vast amount of corporate data,
customer data, and process information as part of application assets.
Of all the assets, "Application Assets" due to their inherent nature of closely coordinating
with the business processes to deliver value to the business, plays a crucial role in
attaining business agility. Most of the key business processes are supported by one or
more application. Key business drivers such as increased revenue, enhanced
management and operational efficiency are directly dependent on the application portfolio.
To optimize this application portfolio, CIOs should look towards implementing an
Application Portfolio Management (APM) framework, which keeps the necessary checks
and balances on the applications. The main objective of moving towards an optimized
application portfolio should be to eliminate all factors in the application portfolio which
constraint the business.
A properly implemented APM framework will ensure the following:
- Adequate visibility into the application portfolio: An application
inventory will help in optimizing applications and prioritizing initiatives.
- Rationalized application portfolio: A rationalized application portfolio
helps in weeding out duplicates, redundancies and obsoletes. This helps
in an accurate and more productive application portfolio.
- Modernized application portfolio:Applications are modernized to retain
the investments made in them and at the same time bring them in sync
with the business.
An APM will result in bringing down the maintenance cost of the application portfolio
freeing up time, money and resources for other value added work. This will result in
benefits such as better business decision making, quicker time-to-market and improved
customer relationships. Similarly, a project portfolio management (PPM) framework will
ensure alignment of projects with business objectives.
ROUTE TO A MANAGED PORTFOLIO - HOW TO PUT A PORTFOLIO MANAGEMENT FRAMEWORK IN PLACE
We recommend the following steps for putting in place a robust framework:
Business problem diagnosis:
Organizations must discuss with senior business and IT
stakeholders to identify key business problems. These business problems must be
diagnosed with respect to primary factors such as the enterprise, business process,
geographies involved, users, applications and IT Infrastructure. One of the key things to be
discussed with business owners is the future business direction, and its impact on
applications/users/processes
Application assessment:
Organizations must assess applications with respect to the
overall alignment with the business. Applications must be analyzed on two primary factors:
Technical and Functional. The extent of Technical and Functional gaps in an application
should determine the appropriate strategy for that application. The strategy for an
application could be retain, replace, migrate, technical extension or functional extension.
The inputs from the assessment exercise can be used to identify duplicate applications,
duplicate functionalities and mark them for elimination.
ROI analysis:
To ensure that the application portfolio optimization makes proper business
sense, it is imperative for organizations to undertake a proper ROI analysis. The key to a successful ROI projection is ensuring accuracy of information captured on benefits, costs
and risks during the first two steps.
Project rationalization roadmap:
The rationalization roadmap will list down the projects
that have to be executed to rationalize and modernize the application portfolio. A time
based project charter listing the projects to be executed as per agreed priorities will be the
outcome of this step.
Implement rationalization roadmap:
In this step, organizations must decide on the way
they want to implement the rationalization roadmap. Depending upon the number of
projects, organizations can decide on teaming up with off-shore/near-shore vendors to
ensure faster implementation.
SUSTAINING GAINS THROUGH A GOVERNANCE FRAMEWORK
While an optimized application and project portfolio will ensure that IT is synchronized with
business, this state of alignment will not remain forever. To ensure that initial gains are not
frittered away, organizations have to ensure continuous alignment with business.
Keeping this synchronization intact is a challenging task. Hence, it is very important that
after rationalizing and modernizing the application and project portfolio, there should be a
process in place to continuously monitor the portfolio and measure the key performance
indicators (KPIs) to sustain these benefits. An "IT Governance" framework can ensure
sustenance of these initial benefits.
Effective IT Governance is a continuous process that:
- Ensures that application and project portfolio remain in strategic alignment
- Provides dashboard driven application portfolio and project monitoring
- Specifies decision-making authorities and makes them accountable.
The framework will consist of policies, organization structures, roles and responsibilities
and business metrics clearly defined and agreed upon. Depending upon the need, the
framework should be supported by a good ITG tool. The ITG framework will help to govern
and manage both the application portfolio and project portfolio. It will help in decision
making while selecting or rejecting projects. A governance framework will ensure that
adequate governance policies are in place to manage the organization's progress on the
maturity scale.
The necessity of monitoring the portfolio is well understood. The question is: How to
monitor? What to monitor? What sort of dashboards to present so that all decisions are
well-informed decisions?
It is essential that each asset and project in the IT portfolio be monitored through a
"governance radar" and every item on this radar be examined for its fitness to deliver business value on a continuous basis. While managing the portfolio on a day-to-day basis,
there should be a process in place to continuously seek out opportunities for optimization.
Any component within the portfolio can be impacted by many factors mainly by change in
business processes, market changes or new trends in technology. New initiatives (such as
introduction of new technologies) may also have an impact on the portfolio. The
governance process implemented should be capable of factoring these factors and
determine the scale of impact. The changes in business processes should not be ignored
as such changes may impact some of the components (applications, projects, or
infrastructure) of the portfolio either directly or indirectly. An effective IT Governance
framework should be able to give alerts immediately and trace the probable impacted
components.
MEASURING EFFECTIVENESS THROUGH DASHBOARDS
The ITG framework should provide dashboards and metrics that diagnose the portfolio and
raise alerts for its non-alignment with business goals. The dashboard and metrics have to
be plugged into the necessary data stores and repositories to present correct information.
The ITG framework is expected to collect data and produce metrics regarding resource
utilization, variances, application spending and project spending. This information can be
projected on the application health and project health dashboard.
The dashboard gives a multidimensional view of the entire portfolio. The data points
collected for the project portfolio and application portfolio could be different. For each
application, the data needs to be captured with respect to various factors such as: cost
(maintenance, operations, software licenses, etc.), quality (functional, data, etc.),
availability of application and customer satisfaction.
Figure 2: Dashboard providing a multidimensional view of the entire portfolio
At the same time, organizations have to also ensure that the data for each project is
captured accurately. The data points for project monitoring could be Variances (schedule,
efforts, budget etc.), issues and scope changes, Earned Value, Resource allocation, ROI
etc.
It is equally important to monitor risks for each project. An IT Governance (ITG) framework
must provide a good risk management plan. It should be able to provide mitigation and
contingency plans for each risk identified in risk profiles for a particular project. Each
project can be assessed for generic risks such as security, regulatory compliance,
resources, vendor viability, privacy, and information risk. It is vital for risk monitoring to be
part of the dashboard.
In many cases, the quality of the decision made is dependent on the visibility the decision
maker has of the application portfolio. Without this clarity of the portfolio, changes to the
portfolio are costly and less efficient. As a result, organizations cannot make informed
decisions about prioritizing application changes, modernizing / retiring applications,
ensuring regulatory compliance or outsourcing/off-shoring application maintenance.
Application maintenance and support is a daunting task because the application portfolio
has become a tangled web of interdependent and cross-referenced applications with
application owners themselves at loss in determining the best way to respond to day-today
maintenance and support problems.
The remedy is to design an application portfolio dashboard that one can monitor to track
the performance and the pertinence of the application portfolio on an on-going basis (as
shown in Figure 3 for a CRM application). The foundation of this application portfolio
dashboard would be the application inventory which would be a central repository having
important details built by aggregating information from various sources. This inventory will
be updated on an on-going basis to ensure that it stays current.
Figure 3: CRM Application view on an IT Dashboard
The IT dashboard also provides other details on the application such as:
- Security: Sensitivity of data held or accessed by the application, type of access,
and type of threats.
- Risk Profile: An organization can use information on the dashboard for
ascertaining the following:
- Vendor Viability: Vendor viability if it is a COTS product or requires
specific support from a third party vendor
- Disaster Recovery: Is the application an integral part of the disaster
recovery plan
- Resource Availability : Is there a dearth of resources in the industry
- Technology viability: Is the technology outdated or will get outdated in
the near future.
THE IMPORTANCE OF AN OPTIMIZED APPLICATION INVENTORY
The application inventory acts as a quick reference for the organization providing an
insight of the available products/systems across the enterprise while enabling to choose a
technology that is complimentary to the existing ones. Application Inventory can act as a
system of reference to eliminate duplicate application development or deployment.
Application owners before authorizing new application development can carry out a quick
check of the existing inventory to ensure that there are no instances of other applications
fulfilling same or similar requirements. IT managers can more effectively control costs
related to upgrade, maintenance and licensing as a result of better visibility about what
kind of applications are present in the enterprise portfolio.
APM+ PPM + ITG: ENSURING A CONTINUOUS PERFECTION LOOP
With a portfolio that is rationalized and optimized, organizations can look for further
opportunities of optimization of assets. Balancing the asset and project portfolio would
require implementing an application and project portfolio framework in combination with an
IT Governance framework. Balancing resources and asset requirements will provide a
holistic and correct view of IT investments and assets.
Asset and project portfolio are complementary to each other. They are like "Yin and Yang"
of ITPM. The concepts of Yin and Yang originate from an ancient Chinese philosophy that
describes two opposing but complementary forces. One can be transferred into another. A
project after closure and successful roll out creates an asset (application) which will
provide further value to the business. At the same time, any impacted asset component
that would require further optimization to enhance or sustain its business value would in
turn result in creation of a project. The following figure demonstrates the Yin & Yang cycle.
Figure 4: The role of APM, PPM and Governance framework in ensuring a perfection loop
The combination of Application Portfolio Management and Project Portfolio Management,
governed by an IT Governance framework will ensure continuous improvement in
performance and sustain the portfolio at a high level of optimization. This will directly
impact the organization's capability to adapt to business changes faster, execute new
initiatives/adopt new technologies, manage changes and resources efficiently.
ABOUT THE AUTHORS
Sushil Paigaonkar
For over 15 years in the IT industry, Sushil Paigaonkar has worked on a variety of
technologies and standards. In the last few years, he has been focusing on Enterprise
Applications and Integration. Specializing in Legacy Modernization and Application
Portfolio Management, Sushil leads the Enterprise Portfolio Rationalization Centre of
Excellence at Patni. He also plays an important role in Patni's consulting assignments
focused on helping customers achieve optimal cost-benefits from their application
portfolio.
Jayant Ponkshe
Jayant Ponkshe is a Solution Architect with the Manufacturing Solutions Group at Patni.
He has over nineteen years of experience in software application design, development
and maintenance. As a solution architect, Jayant is combining his experience and
expertise in IT processes improvement for providing value added business solutions to
Patni's clients.
ABOUT PATNI
Patni Computer Systems Limited (BSE: PATNI COMPUT, NSE: PATNI; NYSE: PTI) is a
global IT Services provider servicing Global 2000 clients through its industry practices in
Insurance, Financial Services, Manufacturing, Telecom, Retail, Media & Entertainment,
Energy & Utilities, and Logistics & Transportation; and through its technology practices.
With an employee strength of over 12,000; multiple offshore development facilities across
eight cities; and 23 international offices across the Americas, Europe and Asia-Pacific;
Patni has registered revenues of US$ 450 million for the year 2005.
Patni's technology focus spans enterprise applications, embedded technologies,
e-business, business intelligence & data warehousing, and RFID. Our service offerings
include: application development, application management, business process outsourcing,
infrastructure management, product engineering, verification & validation, process
consulting, engineering services, and IT governance.
Committed to quality, Patni adds value to its client's businesses through well-established
and structured methodologies, tools and techniques. Patni is an ISO 9001:2000 certified
and SEI-CMMI Level 5 organization, assessed enterprise wide at P-CMM Level 3. In
keeping with its focus on continuous process improvements, Patni adopts Six Sigma
practices as an integral part of its quality and process frameworks.
For more information, visit http://www.patni.com
Sushil Paigankar
Jayant Ponkshe
COPYRIGHT
Copyright ' Patni Computer Systems Ltd. All Rights Reserved.
October 2006
Restricted Rights
This document may not, in whole or in part, be copied photocopied, reproduced,
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consent, in writing, from Patni Computer Systems Ltd.
All other brand and product names are trademarks of their respective companies.
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Table of Contents
- Introduction
- The Challenges of Aligning Business with IT
- Components of a Typical IT Portfolio
- Route to a Managed Portfolio - How to put a Portfolio Management Framework in Place
- Sustaining Gains through a Governance Framework
- Measuring Effectiveness through Dashboards
- The Importance of an Optimized Application Inventory
- APM+ PPM + ITG: Ensuring a Continuous Perfection Loop
- About the Authors
- About Patni