INTRORDUCTION TO IT PORTFOLIO MANAGEMENT Pertemuan 1-2 Matakuliah : A0824/IT Investment Portfolio Tahun : 2009 INTRORDUCTION TO IT PORTFOLIO MANAGEMENT Pertemuan 1-2 You can either take action, or you can hang back and hope for a Miracle. Miracles are great, but they are so unpredictable. ~ Peter Drucker ~

Emergence of IT Portfolio Management Growth in Adoption in IT Portfolio Management Objective of IT Portfolio Management Why Assessment Standards Are Used New Perspective on Assessing IT Worth New Perspectives on IT Management

Growth in Adoption in IT Portfolio Management Managing IT from an investment perspective – a continuing focus on value, risk, cost and benefits – has helped businesses reduce IT Costs by up to 30 % with a 2X – 3X increase in value Examples Merrill Lynch reported that using IT portfolio management saved between $ 25 million and $ 30 million in one year by slowing down or stopping planned initiatives and redirecting project funding faster and more effectively After Mercy Health Partners, a six hospital network in Toledo, Ohio, adopted IT portfolio management, Gartner Group found it to be 30% more cost effective in running its IT platforms than a peer group handling the same workload.

Objective of IT Portfolio Management Maximize the return on IT investments and achieve performance objectives at acceptable cost and risk. To identify and fund – or continue to fund – only the best investment Reviewed to reconfirm its continuing worth as the best use of the funds Done during the time it is an IT project as well as after the project is completed and it has become an implemented system. if at any time it is found not to be the best use of the funds, a decision will be made to: Change Replace Discontinue the project or system Competition with other possible use of the fund Adjusted for the amount of risk associated with the portfolio.

Why Assessment Standards Are Used Are aligned with the organization’s goals and performance targets Respond to priority needs and opportunities Provide a superior balance of benefits, costs, and risks Complement other investments and interoperated with existing systems Do not duplicate or overlap other investments Support or complement the target enterprise architecture Incorporate Information security measures as needed.

New Perspective on Assessing IT Worth Old Perspective on Assessing IT Worth Mainly financial Cost savings/tactical Single business area Near term benefits Acquisition costs Multi year projects By the IT department Technically risky Standalone systems Multiple architectures Pre Project assessment Project management Focus is on internal Objectives and users New Perspectives on Assessing IT Worth Holistic Opportunity/strategic Multiple business areas and enterprise Life cycle benefits Life cycle cost Modular, incremental projects By line manager and team Organizationally risky Interdependent systems and infrastructure Enterprise architecture Pre, during, and post project assessments Organizational change and value management Focus is on enterprise strategic Objectives and the customer

New Perspective on Assessing IT Worth More Emphasis on Non Financial Criteria Recognizing that ROI is Not Enough Emergence of New IT Investment Criteria Acceptance of the Need for Comprehensive Criteria

New Perspectives on IT Management Increased Strategic Use of IT An Enterprise View Benefits, Costs, and Risks over the Life Cycle Modular, Incremental Projects Line Manager Responsibilities for IT Risk Associated with Organizational Change Importance of Infrastructure and Interdependencies The Enterprise Architecture Assessments over the Life Cycle Management of Organizational Change Focus on Strategic Goals and the Customer

The Sunk Cost Fallacy Sunk costs are unrecoverable past costs. This are the costs incurred before the current evaluation of a proposal Such costs have no significance in proposal evaluations and should not be used. Only new or incremental costs are relevant to current proposal funding decisions. Some people believe that ignoring sunk costs wastes resources.

Example: If $ 500,000 has already been spend on a project, some believe that those funds will be wasted if the project is not completed . Actually, nothing can be done about the funds previously spent. The question is what is the best use of any new funds. It may or may not be wise to put additional funds into the project on which $ 500.000 has already been spent. The decisions now must be for the best use of the present funds-that is, to gain the best investment returns and greatest contribution toward achieving the priority objectives Bina Nusantara University

Reason to have periodic assessments over the life cycle of an IT Investment: A Change in the goals of an organization may mean the project is no longer aligned with the goals and may not be needed. Projects that have been broken into chunks need to be assessed to determine what changes, if any, need to be made in the next chunk or in the completed chunk(s). After the project has been completed and the system has been implemented, periodic evaluations help to ensure that the in place system deserves continued funding. Periodic assessments provide information needed to shift resources from IT investments that are low yielding, risky, or poorly aligned to those that are high yielding, less risky, and aligned with the priority goals of the organization.

Adopting a Portfolio Management View Modern Portfolio Theory Determine how risk the organization is willing to take when investing in IT Seek diversification among IT investments as a means of reducing overall IT investment risk Balance IT investments by type of investment by performance area and by investment phase to improve portfolio performance results while reducing portfolio risk. Evaluate alternative IT investments and portfolios to make sure that the portfolio planned or being used provides the highest return for acceptable levels of cost and risk.

Adopting a Portfolio Management View Practical Definitions An IT portfolio is a collection of information about investments in, or that involve, information technology. Every significant IT asset is described in the IT portfolio, along with every initiative, program, project, business activity, business process and strategy, outsourcing contract, and license that involves, relies on or makes use of IT

Adopting a Portfolio Management View Definition of IT Portfolio Management IT portfolio management is a process for identifying, measuring, and controlling an optimal mix of IT investments in order to maximize the contribution of the investments to the achievement of the priority enterprise goals and objectives at acceptable levels of cost and risk

Nature of the IT Portfolio Asset Performance Information Improvement Needs and Opportunities Controlling, Aligning, and Focusing IT Resources