Do you know how many projects you have and how much capital that portfolio creates? “If IT directors can’t answer that, they are not managing their portfolio,” says Darin Brumby, group IT director at FirstGroup. Portfolio management is a key skill for any IT director. If you are not managing your projects as a whole, you will be chucking precious budget down the drain with one hand and throwing away business value with the other. Do it well and it might just swing you that elusive boardroom ticket.
“Some organisations do it very well and others are just comfortable to keep looking forward and set rabbits off and running without thinking about things they already have running,” says Brumby. It can be tough when there are lots of new opportunities – lots of carrots for those rabbits to lollop after. The response of any CEO is going to be, if it is good for business, why can’t we do all of it?
But you need to make a judgement call about which projects to pursue, if you are to retain any kind of control. Which is where portfolio management steps in.
A different view
Firms that want to maximise their investment need to look at the IT portfolio as a whole rather than judge projects’ worth individually. The true value of a project goes beyond simple ROI; it needs to be held up and cross-matched against an organisation’s overall strategy.
“You could take a naïve view and say it’s just project management, but the difference is this is where projects deliver shareholder value,’ says Richard Hurley, consulting director at business advisory firm Deloitte.
Starting from this perspective can radically change the way you view your portfolio of projects. “One organisation completely turned its project portfolio on its head,” recalls Hurley.
“Rather than looking at 15 or 20 projects with nice ROIs, they started looking at it from shareholder value perspective which gives far more benefit to the business.”
IT portfolio management is about viewing IT like a financial portfolio: there should be a balance of high, medium and low-risk investments.
Chris Cook, IT director at Nuffield Hospitals recognises the need to strike a balance between large-scale projects and smaller initiatives.
“We try to have a manageable number of large projects. We’re medium-sized with about a £500m turnover. It’s quite a large organisation but we need to have control of those projects,” says Cook.
There are a handful of key projects running now, including an infrastructure refresh project and the ‘choose and book’ initiative, designed to give the public greater control over where and when they can see a medical specialist.
“Below that we probably have 20 to 30 smaller projects going on, but the strategic focus is on the big projects. The key to that is to make sure the background stuff of ‘keeping the lights on’ is managed as a utility.”
Cook sees his role split in three ways. He needs to ‘keep the lights on’, but just as important is ‘make sure the IT strategy is delivering against the business strategy’. The final step is to see ‘where IT can help push the envelope into the business’. “You have to make sure you have a strategy that’s clearly aligned with business and that you have the support of senior business shareholders,” says Cook.
“The key is that strategy has to be structured and commercially focused so you can see IT is being properly managed.”
Things change rapidly, and CIOs must constantly reassess which projects are on target, which are flailing and which should be abandoned.“Don’t be afraid to turn off projects. Often I have been brought in to say stop,” says Pip Peel, director at project management consultancy PIPC.
“It’s not a problem saying no – don’t throw good money after bad. Telling it straight is better than hiding behind a Gantt chart.”
Treating IT as a financial portfolio does not mean assessing success by cost alone.
There is still too much emphasis placed on ROI, not value. Delivering the same services cheaper is great and may well be one of the company’s objectives, but where is the shareholder value in that? How is it contributing to the business?” says Hurley.
“There’s been more cost reduction work than ever before over the last three years. But there’s a move towards how we demonstrate value and more concentration on innovation – how can we take our organisation forward?”
He makes a distinction between shareholder price and shareholder value. Shareholder value is how an analyst would view the company rather than that day’s price tag.
It could be based on many different elements, including R&D investment and company ethics, and will vary according to industry. It is business value that is important for long-term success, not share price. “Shareholder value is a much overused term at the moment – I am not sure people know what it really means,” says Hurley.
Weighing up whether to invest in a new distribution channel or to implement a new HR system is like comparing apples and bicycles.
Viewing it through the shareholder spyglass can help companies distinguish which project to prioritise.
To do that, you need some kind of methodology, either by buying one of the many off-the-shelf software solutions; adopting methodologies from consultants and vendors; or by developing your own internal method.
“What I’m trying to do is manage IT in a much more connected, structured way than was done previously where it was just a support strategy. One of the first things I helped introduce was a structured methodology for projects,” says Cook.
“It really does help you focus on prioritising. I develop roadmaps and work closely with the business,” he says.
He chose not to buy in software. “I’m not sure you need fancy tools,” says Cook. What you do need is experience. With a background at BA and other multinationals, Cook felt able to develop his own methodology together with the head of procurement.
Centralising IT, using Lawson’s financial and procurement software to give it visibility across its 40 hospitals, was a key strategy for gaining this control. “Centralisation actually helps an awful lot in terms of IT strategy – you can set up applications, manage systems centrally and there’s no fighting between departments.”
The Department for Constitutional Affairs (DCA), which among other things is responsible for magistrates and crown courts, also centralised its IT to gain better portfolio management across its 900 or so sites.
Last year, it completed a move to shared services and uses Mercury’s IT governance suite. This includes portfolio management capabilities to help give greater control of its IT assets.
“We’ve got about 24 projects and one major change programme under way and we treat that as one portfolio,” says Roy Godfrey, assistant director of project and programme management. Each project is assessed on time, quality, scope, cost and benefits. A low, medium, high or mission critical tag is assigned to each one.
Having the software helps DCA take a structured approach to projects and how it will impact other projects, believes Godfrey.
Know what you have
Software or no software, you cannot do anything until you have compiled a detailed inventory of existing projects, including costs, objectives ROI and benefits. In some cases this could be the first time this has happened.“When I joined there was no understanding of business management. We just had initiatives without any form of resources management,’ recalls Brumby.
This is often the case, agrees Peel. “I’ve been in organisations where they did not know what they were doing – there was no portfolio.”
But it is essential to find out what you have. In a large, dispersed company, you could easily find that two separate projects are basically doing the same thing. “If you looked at many IT portfolios over the last 10 years you could probably slash half of them,” adds Peel.
Cutting out the wastage can immediately make the portfolio leaner and cut costs.
“I can imagine for companies that haven’t got a handle on it at all they could make double-digit savings,” contends Alan Rodger, research analyst at Butler Group.
Managing your IT portfolio is both an art and a science, believes Peel.
“I don’t think it’s rocket science but people aren’t doing it. I believe they aren’t because you can’t do it from a manual. It comes with having a track record and real experience.
“It’s about soft skills and politicking, cultivating shareholder value rather than ROI. Sometimes shareholder value is about building revenue but sometimes it’s not just about profit,” says Peel.
“It’s not about process or tools, it’s people. The key to doing the right thing is to talk to the right people in the business – don’t just do that once. You must constantly challenge the portfolio.” Widening IT portfolio management outside the IT ghetto and talking to people across the business is vital.
In fact, Brumby believes that IT departments should not be tag projects with the letters ‘IT’ at all. “There’s no such thing as an IT project, even if it’s technology-oriented. Technology plays a part in all projects, some will be 5 per cent IT, some will be 99 per cent.”
Brumby sees a case for having a portfolio or programme management department totally separate from IT.
“A proper portfolio management department can focus on that and see ways of mitigating the risk. They’ve got an enterprise-wide view across the company,” he says.
This is what happens at DCA, which has a unit of business partners who go out to every part of the business to get new idea requests, which are then fed back to IT.
Godfrey is part of that, internally called the delivery group. “We run projects on behalf of the business. Every one of the 24 projects has someone responsible for running them and these are business not IT people.”
But often IT is in charge. “If there is no programme or project office you may see it starting in IT. The risk with that is you will fight the classic battles of ‘oh it’s IT’. It’s not a bad place to start, but the real tick in the box is to get ownership back into the business,” says Brumby. Hurley believes that it depends on the business. “If it’s an organisation where change happens anyway, then it should be holistic across the business. But often technology is the area where change happens,” he says.
Often the IT part is done well: it is well-scoped and defined but the same rigor is not necessarily applied in the business, even though, as Peel points out: “Successful companies don’t have IT projects, they have corporate level change.”
This is about business maturity. “When business leaders question that model and ask why the programme is in your office, that’s when you’ll know you’re three or six months away from project services morphing into value adding stage,” Brumby suggests. But that of course means that IT has to be good at delivering projects. Without that trust and track record of project delivery, then it will not work. “It’s a difficult one,” admits Brumby. “The only way to do it is to keep on making that demonstrable delivery, relentless delivery, just keep on doing it right and create a track record.”
Effective portfolio management will not only create savings (a recent study from portfolio management company UMT puts IT investment wastage at an average of 40 per cent) it can make the CIO look good.
“Portfolio management is a way to demonstrate the effectiveness of the IT function. As CIOs try to operate at board level this is exactly the type of thing the board wants to see,” says Rodger.
“There are two types of CIO: order takers – the traditional CIO whose business says ‘we need this’ and they do it – and CIOs who desire a role on the board and who challenge what business projects are delivered. I don’t think you’ll get to derive shareholder value with the former type of CIO,” says Hurley. “As a CIO, do you have a right to be on the board? If you’re not there challenging the business, if you’re just an IT person, then you shouldn’t be there.”
If Hurley is right, it is up to CIOs to decide whether they want to take orders or shape the business.