With technology budgets under increasing scrutiny, IT executives' attention turns to methodologies that provide better insights into understanding and prioritising IT spending. The IT portfolio is a management tool that enables firms to develop a holistic perspective of technology usage and understand how IT can maximize business value. Unfortunately, there is a wide gap between the best-practices for IT portfolio management - as documented in de facto industry standards such as ITIL and COBIT - and how firms use them. Common shortcomings that ultimately hinder the IT portfolio from attaining its potential effectiveness stem from:

• Limiting the portfolio's focus to projects. Project portfolio management is what all firms start with because it ties into effective governance. In most firms, this accounts for less than 30 per cent of the total IT spend. The bulk of the IT budget goes toward maintenance and ongoing operations. This largest portion of IT spending and resources is not managed with project portfolio techniques and not mapped to business functions.
• Managing IT's portfolio in disjointed categories. Many IT organisations continue to work with disjointed portfolios of projects, applications, IT assets, and services. Connecting these information repositories, relating them to business services and then determining how to map their costs to business users is a management challenge that few IT organisations really master.
• Missing enterprise-level, business-driven IT governance. Still many organisations "manage" IT decisions in an ad-hoc and disjointed manner. The most typical symptom of weak enterprise IT governance is the proliferation of solo IT functions that emerge when unit managers perform local optimisation instead of maximising the portfolio value at the enterprise level.
• Failing to consistently collect, track, and appraise metrics across all activities. Many IT organisations struggle to collect and systematically use metrics from their technology initiatives. This leads to the IT organisation making poor decisions on how to balance risks, payback, capital allocation, and distribution.

The portfolio-oriented organisation of a manufacturing company

Lean principles can help IT bridging the gap

CIOs looking to achieve lasting performance improvements through IT portfolio management should develop it using the principles of lean thinking: 1) specifying value by specific services; 2) identifying the value stream for each service; 3) making value flow without interruption; 4) letting the customer pull value from the supplier; and 5) pursuing perfection. These principles took lean management away from manufacturing production techniques to the services sector. When applied to IT, the five principles become best-practices for sustainable IT portfolio management. Specifically:

• Develop the IT portfolio as a business-focused representation of services. Use business-oriented segmentations, and aggregated resource data in projects, applications, assets, and services to create a unified life-cycle representation of business services such as computer-aided engineering, CRM, or collaboration.
• Use the portfolio structure as the architectural basis for IT's organisation. With IT capabilities aggregated around services that the business understands and appreciates, IT executives can organise IT around centres of excellence and shared services that focus on clearly articulated business and technical needs, such as R&D, data management or platforms (see Example).
• Seek out and eliminate waste. The mapping of IT's activities, resources, and costs onto the business-oriented portfolio displays IT's main activities, reveals the distribution of costs and effort, and show the sources of duplication and unreasonable work. These insights highlight the changes required to streamline the relationship with the business and maximise the value of IT through disciplined consolidation.
• Integrate IT governance around the enterprise portfolio. Many IT executives today are likely trying to use several separate governance models: one steering committee for business-sponsored investments, a separate committee for IT projects, and other governance processes for service quality and satisfaction. These should be unified around the concept of the service portfolio and business-driven decisions to increase the portfolio's visibility at the enterprise level.
• Monitor both changes to and performance of all services. The portfolio must be updated when changes to services occur, with all initiatives tracked according to predefined thresholds and criteria such as business criticality, investment size, and risks. Using these thresholds and historic metrics, portfolio analysis can identify and flag planning and execution anomalies such as undersized projects, overly ambitious initiatives, duplicate activities, inappropriate resource allocations, and delays.

Lean thinking principles are a keystone for value based IT portfolio management

CIOs know that in these turbulent economic times, they must step up their value management and communications, improving the transparency of IT costs, capacity, and business demand. This may be critical, but it is extremely difficult to optimise the value of the IT portfolio at the enterprise level, when business and IT functions manage their portfolios of projects, applications, assets, and resources as separate silos. CIOs should prioritise their actions around the five principles of lean thinking and apply them as a corporate strategy for maximising the business value of IT.

Forrester's IT Forum

Alexander Peters will address this topic during Forrester's IT Forum EMEA 2009 event in Berlin (June 3 - 5), in his session on "Transforming IT For Lean Times: Planning The Transition". CIO Magazine UK has partnered with Forrester to offer readers up to 40 per cent discounts on the analyst group's IT Forum 2009, June 3-5, 2009 - Maritim Hotel - Berlin. For more information click here.