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IT Portfolio Management in 10 Slides

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IT Savvy firms achieve greater return on investment than their counterparts. A key reason is IT Portfolio Management.

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IT Portfolio Management in 10 Slides

  1. 1. IT PortfolioManagementin 10 Slides Alfred Essa http://alfredessa.comalfred.essa@gmail.com
  2. 2. Three Fundamental Questions Did we spend the right amount on IT? Did we spend it in the right places? Did we get the right return on investment? IT portfolio management addresses three fundamental investment questions.http://alfredessa.com Source: MIT Center for Information Systems Research (CISR)
  3. 3. Golden Rule of IT Portfolio Management Strategic Analytical Transactional Infrastructure “Invest and track total IT dollars as asset classes. ” key concepthttp://alfredessa.com Source: MIT Center for Information Systems Research (CISR)
  4. 4. Four IT Asset Classes Infrastructure IT: Provides the foundation of shared IT services, used by multiple applications. Transactional IT: Supports core business processes through automated transactions. Analytical IT: Provides data, intelligence and analytics for managing the enterprise. Strategic IT: Supports entry into a new market, develops new products, capabilities, and innovations.http://alfredessa.com Source: MIT Center for Information Systems Research (CISR)
  5. 5. Why do IT Portfolio Management? Firm Setting, Profitability, Input Innovation IT Savvy Firm IT Savvy Firms achieve above average returns and innovation from their IT investments.http://alfredessa.com Source: MIT Center for Information Systems Research (CISR)
  6. 6. Different IT Assets Deliver Different Value or Return Market Asset Class Lower Cost Profit Innovation Valueaverage changesin performance Infrastructure - - + the year after Transactional + investment Analytical + Strategic + 1 = Profit is Measured by Net Margin = Income Before Extraordinary Items/Total Sales. 2 = Innovation is measured by Sales from Modified and Enhanced Products/Total Sales and Sales from New Products/Total Sales. 3 = Market Value is measured by Tobin’s q - the Market to Book value of company stock, in the same year the investment is made. http://alfredessa.com Source: MIT Center for Information Systems Research (CISR)
  7. 7. Risk Profiles of Asset Classes Sample Asset Class Risk Allocation Transactional Lowest 29% effective portfolio management balances risks vs return of asset Analytical Low 14% classes Infrastructure High 46% Strategic Highest 11%http://alfredessa.com Source: MIT Center for Information Systems Research (CISR)
  8. 8. Diversity of Asset Classes we apply the principle of diversification for managing IT investments In 1952, Dr. Harry Markowitz, Nobel Laureate and pioneer of portfolio management, showed that a diversified portfolio of high- and low-risk investments yields a higher return than a portfolio comprised of solely high-risk investments or a portfolio of only low-risk investmentshttp://alfredessa.com Source: IT Portfolio Management Step-by-Step by Bryan Mazlish, Robert Handler
  9. 9. Sustaining vs New IT savvy firms try to maximize investments ew N in new, strategic initiatives Strategic Analytical ng ini Transactionalsta InfrastructureSu Peter Weill, Senior Research Scientist & Chairman MIT Center for Information Systems Research “The more you spend on new business initiatives the better the performance of the firm, growth and profitability.”http://alfredessa.com Source: MIT Center for Information Systems Research (CISR)
  10. 10. Summary IT Governance DecisionsExecution Investment Alfred Essa Technology Portfolio http://alfredessa.com Strategy Management “IT Savvy firms use portfolio management, in concert with governance and technology strategy, to maximize return on investment and to enable innovation.”http://alfredessa.com

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