A Process for Managing an IT Project Portfolio using T otal  V alue of  O wnership   Presented By   Craig Hockenbrough, PM...
<ul><li>Founded in 1992, Integrated Management Associates (IMA) is a full service Global Management Consulting and Trainin...
<ul><li>Agenda </li></ul><ul><li>Issues Facing CxO’s </li></ul><ul><li>Resolution - Project Portfolio Management </li></ul...
CxO Issues <ul><li>Drive top quality </li></ul><ul><li>Start new projects </li></ul><ul><li>Standardize </li></ul><ul><li>...
Traditional Evolutionary Stages of IT to Business <ul><li>IT not considered strategic supporting Business growth </li></ul...
Tech = 25% Bus = 5% The Compounding of Technology vs Business use of Technology Costs
<ul><li>Reasons to adopt Portfolio Management </li></ul><ul><li>Businesses have invested too much on technology and seen t...
Key Challenges of IT   <ul><li>84% of companies either do not do business cases for their IT projects at all or just do th...
<ul><li>The portfolio management process </li></ul><ul><li>Continuous management </li></ul><ul><ul><li>“ Static&quot; asse...
<ul><li>The IT portfolio consists of:  </li></ul><ul><li>Application systems, products, and suites - either COTS or in hou...
<ul><li>Level of risk  versus expected benefits or value. </li></ul><ul><li>Magnitude of the investment  being made </li><...
Portfolio Management Goals   <ul><li>Balance risk and reward.  </li></ul><ul><ul><li>Consistent decision-making process </...
4 <ul><li>Portfolio components include projects that :  </li></ul><ul><li>Expand the portfolio  </li></ul><ul><li>Renew el...
Project Attributes for Portfolio Management On-time behavior  On-cost behavior  On-scope behavior  On-value behavior (incl...
<ul><li>Measuring IT Value </li></ul><ul><li>Businesses are under a lot of pressure to justify the IT budget and put a mea...
Valuation Methodologies <ul><li>Traditional  </li></ul><ul><li>Economic Value Added (EVA) </li></ul><ul><li>Total Cost of ...
T otal  V alue of  O wnership ( TVO ) Includes Both Technology & Business Metrics Value = Benefits – Risk What’s the value...
TVO Provides <ul><li>Metrics for assessing the Technology delivery system(s) </li></ul><ul><li>User productivity and busin...
Why TVO? Well… Where Do You Want To Go? Competitive Strategy Business Growth Cost Management ROI Profit Competitive Advant...
Business Community Productivity Productivity  Potential SLA = 100% Productivity  Impact Productivity Improvement Access  T...
Business Cost/Benefit Elements CEO/PRESIDENT MFG Customer Support DIST MKT FIN IT Delivery CIO $ $ $ $ IT Costs User Produ...
Component Focus Example Hardware Technology CPU, Storage, Server, Network Software Technology OS, DB, Ntwk., Shrink-Wrap S...
<ul><li>Baseline </li></ul><ul><li>Building an IT Portfolio Approach Starts With the Baseline   ROI based on TVO </li></ul...
ROI based on TVO of Proposed Solutions Looking solely at IT EBDS URL=http://www.cxotoolkit.com/ Cost of Delay=$305,460 Pay...
ROI based on TVO of Proposed Solutions Looking at IT & Business EBDS URL=http://www.cxotoolkit.com/ Cost of Delay=$990,218...
Portfolio Component Cost Comparison (ROI) TVO – An exclusive service of Integrated Management Associates
TVO Process Implementation Start <ul><li>Decision Points </li></ul><ul><li>What-If Analysis </li></ul>Current State Assess...
TVO  Analysis CxO Data Collect Questionnaire and Spreadsheet “ What If ?“ Questions Immediate Feedback Cost &  Investment ...
Craig Hockenbrough,  PMP I Can be Reached at; Main:   (401) 743-7702 E-mail: CraigH@ima-pm.com TVO – An exclusive service ...
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Pmi Tvo 030508

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Assess Total VALUE of Ownership, not Total Cost.

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  • CEO’s and boards are sending messages to control expenses CIO’s are being hit with mixed messages Who’s doling out the conflicting demands – all sides of the business The wise CIO learns to use a portfolio management approach to prioritize what they need to do. That allows them to to trade risk for return and strategic versus “nice-to-have.”
  • Business Has Driven the Evolution of IT from “Order Taker” to Full Integration… The role of IT in this stage is not considered strategic in terms of supporting business growth, the cost of IT is. Therefore, the primary focus of IT organizations at this stage is cost management and operational efficiency. The role of IT is considered to be somewhat strategic in supporting growth and looking for new ways to enhance profitability. Aggressive IT investments are often made at this stage. The IT organization still plays a provider role but is held to more rigorous cost and performance standards, with a view to behaving as a free-market competitor. The IT organization acts like a business and is managed like a business. This is the stage of portfolio management. In this stage, the IT organization manages its portfolio of activities - from baseline business support to asset renewal and development to high-risk business/IT ventures
  • The feature/functionality per dollar spent on technology has risen at an astounding rate. That means that the number of dollars that have to be spent to provide a level of capability has fallen dramatically. The blue line is based on the most conservative findings of studies that show the IT dollar/benefit to be falling at a range of 25% to 40% compounded over the last decade or so. In contrast, personnel costs have risen steadily over that period of time. The graph represents the crossover and ultimate reversal of a 10:1 ratio comparing the value of IT to costs of manpower and overhead. The dates and dollars are representative, but the message is clear. We must shift focus on the cost of IT to the value of business performance.
  • Definition : The portfolio management process is a continuous one that pervades the management of the somewhat &amp;quot;static&amp;quot; assets (existing applications, hardware, etc.) and the &amp;quot;active&amp;quot; assets (projects, etc). It is the continuous analysis of new opportunities, the performance of existing assets, and the interaction of devoting resources to new opportunities. It is critical that an enterprise&apos;s IT assets be fully, aligned with business needs and actively managed from an investment perspective (risk, yield, benefits, etc.), The key operating considerations for portfolio management of IT are the continuous monitoring of existing &amp;quot;investment&amp;quot; performance (the portfolio component) and the process for adjusting the portfolio through &amp;quot;projects&amp;quot; that impact it. Investment performance should be monitored through visibility of cost, risk, benefits/yield, and alignment with goals.
  • COTS - C ommercial o ff t he s helf products Human resources – operators, network architects, maintenance, backup &amp; recovery personnel, external maintenance contractors, DBA’s Data/information – purchased data, cost to reduce/clean/verify data
  • IT assets, like assets in a personal portfolio, should be managed with a “buy, sell, or hold” mentality. We find that many organizations, like many investors, are good at buying, but have difficulty in determining when to “sell” — in this case, when to move away from certain technologies and applications.
  • There are 2 main goals of project portfolio management: 1. Balance risk and reward. The portfolio management approach enables companies to deploy a consistent decision-making process that systematically weighs risks and rewards for each critical business and IT decision. This consistent process also helps maintain the “right mix” of investments — appropriately balancing risks and expected returns — and helps align the IT portfolio with the overall risk/reward profile of the organization. 2. Improve communication with business leaders and within the IT organization. Using portfolio management as a communication technique helps IT organizations solve two of their biggest challenges: articulating IT decisions in business terms and improving communication with the business. Moreover, this can help the IT organization better understand its own goals.
  • Projects that expand the portfolio – additional applications Projects that renew elements of the portfolio – data scrubbing, enhancements Projects that correct problems within the portfolio – maintenance . Portfolio management is simply the most effective strategy for achieving sustainable IT/business alignment. IT organizations that fail to employ portfolio management risk sliding into a trap of business-as-usual complacency, while falling behind competitors that exploit this highly effective approach.
  • EVA equals net operating profit minus appropriate capital charges. TCO is an efficiency measure best used for helping service-oriented departments like IT squeeze better price and performance ratios out of key business processes. TEI is a decision-support methodology designed to accommodate risk and flexibility - deferred or potential benefits often left out of straight cost-benefit analyses. REJ ( Microsoft&apos;s) seeks to flesh out TCO by aligning IT expenditures with business priorities. BS joins traditional finance lag indicators with operational metrics and integrates them into a broader framework that accounted for intangibles. IE aims to provide a neutral method of evaluating a portfolio of projects and allocating resources where they will be of greatest benefit. PM To contribute to a company&apos;s bottom line, organizations must view IT staff and projects not as costs but as assets managed by the same criteria a fund manager would apply to any other investment. ITS modeled after Balanced Scorecard, but uses four perspectives, business growth, productivity, quality (both internal and external to IT) and decision making. ROV aims to put a quantifiable value on flexibility. The technique was applied to leasing, mergers and acquisitions, and manufacturing. IE combines options theory, modern portfolio theory, traditional accounting measures like NPV, ROI and IRR, and a raft of actuarial statistics to quantify uncertain outcomes and generate a bell curve of expected results that objectively incorporates both risk and return..
  • We give you the right information to make the right decisions about your technology investments. The Question is: “Where Do You Want To Go?”. Many businesses have already heavily invested in technologies and need to find better ways of managing the cost of existing systems. {Click}We can assess the effectiveness of cost control and containment alternatives. Some businesses find that they must implement new technologies to stay competitive in the marketplace, for example, web-based, consumer friendly electronic storefronts. {Click} We can help you decide which technology implementation approaches will pay off best. Your business may be poised to accelerate growth, grab larger market share, and leap past the competition. {Click} Choosing the right enabling technologies is critical and we help you get the “best bang for the buck”. Depending on your situation, we can provide the right decision points to give you optimal Return on Investment {Click}, larger Profits {Click}, and Competitive Advantage {Click}because with our comprehensive and easy to understand assessments, you have the total picture of both the Technology and Business impacts of your action alternatives. All of this can be accomplished {Click} by the use of our TVO Services.
  • There is an impact to the business value when productivity is impacted due to improper technology (applications, network, infrastructure, SLA, etc.)
  • This is a “Dashboard” view of the variables affecting the value (economic) results of a system/application, either proposed or in actual production. From this view, one can see what effect a single component has on the value. What-if scenarios can be played out by changing each variable separately or in conjunction with one another. Note that the payback period is a little over 32 months, looking at just the technology parameters.
  • This is a “Dashboard” view of the variables affecting the value (economic) results of a system/application, either proposed or in actual production. From this view, one can see what effect a single component has on the value. What-if scenarios can be played out by changing each variable separately or in conjunction with one another. Note the payback period is now just under 10 months considering the business and technology parameters.
  • What Do You Get From A TVO Process? {Click} Everything is accomplished by the facilitated capture and analysis of pertinent business and IT knowledge. {Click} The first deliverable is a current state assessment, or put more simply, a baseline of what is happening today. This baseline provides an understanding of the value of the current production systems (infrastructure, applications, networks, etc). {Click} The typical company has a portfolio of proposed initiatives or projects under consideration. The analysis of these proposed initiatives, sometimes a managed project portfolio, is folded in to the baseline defined in the previous phase. {Click}Out of this comes the final deliverable, a comparative analysis of proposed solutions. Here is where a TVO Assessment really pays off…by providing an easy to understand comparison of alternatives. Leaders now have reliable decision points upon which to build their business case. And they also have the ability to test the underlying assumptions with “what-if” scenarios which can be regenerated almost instantly with our proprietary toolkit. {Click} Finally, ongoing support can be provided, consisting of determining the value of new projects to the business, considering them to be implemented and using the baseline to determine the value of each new project either independently or as an enterprise portfolio.
  • Pmi Tvo 030508

    1. 1. A Process for Managing an IT Project Portfolio using T otal V alue of O wnership Presented By Craig Hockenbrough, PMP V.P. Technology Services Prepared By William Corbett Craig Hockenbrough
    2. 2. <ul><li>Founded in 1992, Integrated Management Associates (IMA) is a full service Global Management Consulting and Training company. </li></ul><ul><li>It provides to its clients best practice knowledge and expertise through: </li></ul><ul><ul><li>Management Consulting </li></ul></ul><ul><ul><li>Information Technology Infrastructure Consulting </li></ul></ul><ul><ul><li>IT Assessments – T otal V alue of O wnership </li></ul></ul><ul><ul><li>Project Management Implementation Consulting </li></ul></ul><ul><ul><li>Project Management Seminars - PMI courses </li></ul></ul>
    3. 3. <ul><li>Agenda </li></ul><ul><li>Issues Facing CxO’s </li></ul><ul><li>Resolution - Project Portfolio Management </li></ul><ul><li>Reasons to adopt Portfolio Management </li></ul><ul><li>Alternative Evaluation Methods </li></ul><ul><li>TVO – Total Value of Ownership </li></ul><ul><li>Q & A </li></ul>
    4. 4. CxO Issues <ul><li>Drive top quality </li></ul><ul><li>Start new projects </li></ul><ul><li>Standardize </li></ul><ul><li>Be strategic </li></ul><ul><li>Reduce Cost </li></ul><ul><li>Stop projects that aren’t working </li></ul><ul><li>Shrink infrastructure investments </li></ul><ul><li>Minimize development </li></ul>
    5. 5. Traditional Evolutionary Stages of IT to Business <ul><li>IT not considered strategic supporting Business growth </li></ul><ul><li>Cost Management </li></ul><ul><li>Operational Efficiency </li></ul><ul><li>Benchmarking </li></ul><ul><li>Downsizing </li></ul><ul><li>Support Growth </li></ul><ul><li>Enhance Profitability </li></ul><ul><li>Aggressive IT Investments </li></ul><ul><li>Balanced Scorecard Projects </li></ul><ul><li>Cost & Performance Standards </li></ul><ul><li>Free market Competitor </li></ul><ul><li>Comparison to External World: </li></ul><ul><li>IT Managed as a Business </li></ul><ul><li>Manages Portfolio </li></ul>Service –Order Taker Business Enabler Business within a Business Full Business Integration
    6. 6. Tech = 25% Bus = 5% The Compounding of Technology vs Business use of Technology Costs
    7. 7. <ul><li>Reasons to adopt Portfolio Management </li></ul><ul><li>Businesses have invested too much on technology and seen too little return. IT investments are falling short of corporate goals. </li></ul><ul><li>IT organizations can select best projects for the business and not just keep up with demand for technology innovations. </li></ul><ul><li>IT focused too much on home run technology - the “Killer App”. </li></ul><ul><li>Standish Group Study </li></ul><ul><ul><li>9% technology investments completed on time, on budget & scope </li></ul></ul><ul><ul><li>29% completely failed (wasting $80- $145 billion) </li></ul></ul>
    8. 8. Key Challenges of IT <ul><li>84% of companies either do not do business cases for their IT projects at all or just do them on a select few key projects </li></ul><ul><li>83% of companies are unable to adjust and align their budgets with business needs more than once or twice a year </li></ul><ul><li>67% of IT organizations are not “market ready” — benchmarking is done less frequently than once a year </li></ul><ul><li>89% of companies are flying blind, with virtually no metrics in place except for finance (akin to flying a plane by monitoring the fuel burn rate) </li></ul><ul><li>57% of companies perceive they are balancing the pressures of cost cutting and IT effectiveness — but perception is not necessarily reality </li></ul>From a META Group survey 1/2002 Assessing and communicating the value of IT investments to the business units .
    9. 9. <ul><li>The portfolio management process </li></ul><ul><li>Continuous management </li></ul><ul><ul><li>“ Static&quot; assets (existing applications hardware, etc.) </li></ul></ul><ul><ul><li>“ Active&quot; assets (projects, etc). </li></ul></ul><ul><li>Continuous analysis </li></ul><ul><ul><li>New opportunities </li></ul></ul><ul><ul><li>Performance of existing assets </li></ul></ul><ul><ul><li>Interaction of devoting resources to new opportunities. </li></ul></ul>
    10. 10. <ul><li>The IT portfolio consists of: </li></ul><ul><li>Application systems, products, and suites - either COTS or in house </li></ul><ul><li>Processing hardware infrastructure and operating systems </li></ul><ul><li>Network equipment and software </li></ul><ul><li>Services (including consultative) </li></ul><ul><li>Distinct technology products </li></ul><ul><li>Human resources - internal and external contract </li></ul><ul><li>Data/information </li></ul><ul><li>  </li></ul>
    11. 11. <ul><li>Level of risk versus expected benefits or value. </li></ul><ul><li>Magnitude of the investment being made </li></ul><ul><li>Current fair value . What the investment is worth at any given point in time </li></ul><ul><li>Expected life cycle. When the investment is expected to pay off, and what the various stages of maturity are for a given asset </li></ul>Portfolio Assessments Buy, Sell, or Hold?
    12. 12. Portfolio Management Goals <ul><li>Balance risk and reward. </li></ul><ul><ul><li>Consistent decision-making process </li></ul></ul><ul><ul><li>Systematically weighs risk and reward </li></ul></ul><ul><ul><li>Maintains appropriate balance of risk & return </li></ul></ul><ul><ul><li>Aligns IT portfolio with risk/reward profile of business </li></ul></ul><ul><li>2. Improve communication with business leaders and within the IT organization. </li></ul><ul><ul><li>Articulate IT decisions in business terms </li></ul></ul><ul><ul><li>Improve integration of purpose </li></ul></ul>
    13. 13. 4 <ul><li>Portfolio components include projects that : </li></ul><ul><li>Expand the portfolio </li></ul><ul><li>Renew elements of the portfolio </li></ul><ul><li>Correct problems within the portfolio </li></ul><ul><li>Other, less tangible portfolio holdings include: </li></ul><ul><li>Knowledge and experience embedded in people, processes, systems, and databases </li></ul><ul><li>Intellectual and innovation capital </li></ul><ul><li>Customer/user assets </li></ul><ul><li>Relationship assets </li></ul>
    14. 14. Project Attributes for Portfolio Management On-time behavior On-cost behavior On-scope behavior On-value behavior (includes benefits trajectory along with expected value) Risk level Behaviors trend Intra-project portfolio impact Portfolio impact Revaluation triggers Thresholds of tolerance for deviation from plans Management tempo and funding model (from traditional to venture) Business Driver Project Office Project Management
    15. 15. <ul><li>Measuring IT Value </li></ul><ul><li>Businesses are under a lot of pressure to justify the IT budget and put a measure on value that may not be obvious. </li></ul><ul><li>One way to make the value of IT more obvious is to adopt a logical, repeatable framework—a valuation methodology. </li></ul><ul><li>Adoption of a valuation methodology helps: </li></ul><ul><li>Establish a clear connection between IT and business strategy, </li></ul><ul><li>Link technology initiatives to shareholder value, </li></ul><ul><li>Facilitate negotiations with the CFO, </li></ul><ul><li>Ultimately optimize the budget for IT and spend it where it does the most good. </li></ul>
    16. 16. Valuation Methodologies <ul><li>Traditional </li></ul><ul><li>Economic Value Added (EVA) </li></ul><ul><li>Total Cost of Ownership (TCO) </li></ul><ul><li>Total Economic Impact (TEI) </li></ul><ul><li>Rapid Economic Justification (REJ ) </li></ul><ul><li>Qualitative </li></ul><ul><li>Balanced Scorecard </li></ul><ul><li>Information Economics (IE) </li></ul><ul><li>Portfolio Management </li></ul><ul><li>IT Scorecard </li></ul><ul><li>Probabilistic </li></ul><ul><li>Real Options Valuation (ROV) </li></ul><ul><li>Applied Information Economics (AIE) </li></ul>Total Value of Ownership (TVO)
    17. 17. T otal V alue of O wnership ( TVO ) Includes Both Technology & Business Metrics Value = Benefits – Risk What’s the value of IT? TVO – An exclusive service of Integrated Management Associates
    18. 18. TVO Provides <ul><li>Metrics for assessing the Technology delivery system(s) </li></ul><ul><li>User productivity and business revenue impacts and/or benefits </li></ul><ul><li>Measurement of realistic IT delivery service levels supported by a balanced TVO* (IT & Business) </li></ul><ul><li>Payback period and ROI for the proposed Technology delivery system(s) </li></ul><ul><li>Indicators for the justification for management of software and/or support personnel based on productivity improvements seen in the business units </li></ul><ul><li>A valuable benchmark from which to measure future TVO* </li></ul>*TVO – An exclusive service of Integrated Management Associates
    19. 19. Why TVO? Well… Where Do You Want To Go? Competitive Strategy Business Growth Cost Management ROI Profit Competitive Advantage TVO TVO – An exclusive service of Integrated Management Associates
    20. 20. Business Community Productivity Productivity Potential SLA = 100% Productivity Impact Productivity Improvement Access To Information $ Technology Application SLA < 100 % Drive Costs up Increase Performance
    21. 21. Business Cost/Benefit Elements CEO/PRESIDENT MFG Customer Support DIST MKT FIN IT Delivery CIO $ $ $ $ IT Costs User Productivity Potential New Business $ COO CFO Business Costs ? Lost Business Impact
    22. 22. Component Focus Example Hardware Technology CPU, Storage, Server, Network Software Technology OS, DB, Ntwk., Shrink-Wrap Support Technology Ops., Tech Supt., Consulting Availability Business User, Outage Impact Performance Business User, Productivity Recovery Business User, Restoration Levels of TVO TVO – An exclusive service of Integrated Management Associates
    23. 23. <ul><li>Baseline </li></ul><ul><li>Building an IT Portfolio Approach Starts With the Baseline ROI based on TVO </li></ul><ul><li>Current Systems & Proposed Projects </li></ul><ul><ul><li>Recovery </li></ul></ul><ul><ul><li>Performance </li></ul></ul><ul><ul><li>Availability </li></ul></ul><ul><ul><li>Hardware </li></ul></ul><ul><ul><li>Software </li></ul></ul><ul><ul><li>Personnel </li></ul></ul>TVO – An exclusive service of Integrated Management Associates
    24. 24. ROI based on TVO of Proposed Solutions Looking solely at IT EBDS URL=http://www.cxotoolkit.com/ Cost of Delay=$305,460 Payback = >32 mo .
    25. 25. ROI based on TVO of Proposed Solutions Looking at IT & Business EBDS URL=http://www.cxotoolkit.com/ Cost of Delay=$990,218 Payback = <10 mo .
    26. 26. Portfolio Component Cost Comparison (ROI) TVO – An exclusive service of Integrated Management Associates
    27. 27. TVO Process Implementation Start <ul><li>Decision Points </li></ul><ul><li>What-If Analysis </li></ul>Current State Assessment (Baseline) Facilitated Capture & Analysis of Business & IT Knowledge On-going Support Proposed Initiatives ? TVO – An exclusive service of Integrated Management Associates
    28. 28. TVO Analysis CxO Data Collect Questionnaire and Spreadsheet “ What If ?“ Questions Immediate Feedback Cost & Investment Summaries & Comparisons Reports Business Case, Budget Request Technology Investment Decision Team CEO COO CFO CIO Data Input and Output Current System IT Personnel Alternative Architectures SLA/Business Requirements Business Environment Application Profile
    29. 29. Craig Hockenbrough, PMP I Can be Reached at; Main: (401) 743-7702 E-mail: CraigH@ima-pm.com TVO – An exclusive service of Integrated Management Associates
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