Week 8: IT Portfolio Management MIS5001: Management Information Systems David S. McGettigan

Week 8:
IT Portfolio Management
MIS5001: Management Information Systems
David S. McGettigan
Adapted from material by Arnold Kurtz, David Schuff, and Paul Weinberg
Agenda

Prior Lecture Recap

Capturing the Business Value of Systems

IT Portfolio Management

Next Week
2
Prior Lecture Recap
Prior Lecture Recap

Customer Relationship Management



Business Intelligence




Brings together information regarding customers, sales,
marketing, and products
Functions supported and management issues
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
4
Capturing the Business Value
of Systems
NOTE: This section is a primer for IT
Portfolio Management which follows
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)
6
Cost/Benefit Analysis

Costs:





Hardware
Software
Services
Personnel
Benefits:


Tangible (“Hard”)
Intangible (“Soft”)
7
Costs and Benefits of IT Solutions
Challenge: capturing total costs
Challenge: quantifying benefits
8
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
9
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.
10
ROI

Return on Investment



Use the present value of net benefits
Compare to cost of capital and/or other projects
Expressed as a percentage
11
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?
12
Problems with Managing by
Capital 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
13
Problems with Managing by
Capital 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
14
IT Portfolio Management
Honor isn't about making the right choices. It's
about dealing with the consequences.
Midori Koto
Business Drivers

Drivers for IT Portfolio Management:





Complexity
Cost
Cross-functional
Relationships with other programs
Volume
16
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
17
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
18
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
19
Prioritization
CANCEL
DEFER
Cost
DEFER
EXECUTE
Value
20
Portfolio Mgmt Exercise

See class handout
21
Portfolio Classifications

Infrastructure


Transactional


Process and automate the basic transactions of the
company to reduce costs
Informational


Provides shared based of capabilities for the organization,
leading to greater business flexibility
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
22
Portfolio Comparison
Agility Portfolio
Infrastructure
Informational
Source: www.cio.com
Transactional
Strategic
Cost-based Portfolio
Infrastructure
Informational
Transactional
Strategic
23
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
24
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
25
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?
26
Next Week
Enterprise Applications