Portfolio Management Initiative Briefing Sessions Framework for Managing IT Investments III. Investment Operation and Maintenance, and Renewal, Retirement, or Replacement (Applications and Assets Portfolio Management) I. Strategic Business and IT Planning and Investment Selection and Budgeting (Investment Portfolio Management) Life Cycle of IT Investments Welcome, and thank you for coming to this briefing. The details of our presentations and discussions with you this (morning/afternoon) underlie two key points: Portfolio management is a business (not IT) responsibility. IT investment management is a joint business and IT responsibility. At the end, we will repeat these again, and by then, you should understand why they are true. This picture outlines the three phases of NC Framework for Managing IT Investments described in the State CIO Plan submitted to the General Assembly in March this year. Portfolio management plays a key role in each phase, and we will touch on the three phases and the role of portfolio management in each throughout this presentation. Business and IT managers are increasingly required to streamline budgets and account for costs, justify IT spending, increase service delivery, and deliver value to the state. Proficient capital planning and astute investment management are necessary for satisfying the expectations of constituents and the examinations of funding and oversight bodies. An effective and efficient IT investment management process emphasizes the importance of thorough planning, competent risk management, strict accountability for meeting business/program goals and objectives and asset performance expectations, and cost-effective life-cycle management. The intent is to improve the management of IT, so that it enables the more efficient delivery of better and more accessible services to the public, employees, and other governments. II. Project Implementation (Project Portfolio Management) May 23, 2005

Session Agenda Welcome and Introduction of Presenters Background of IT Related Legislation, Project History, and Overview of Portfolio Management Key Concepts of Portfolio Management and Proposed Use in State Government Investment Portfolio Management Project Portfolio Management Applications Portfolio Management Implementation Phases in State Government Project Training and Implementation Schedule Workflow for Project Approval and Status Reporting Wrap-up – Questions and Suggestions Over the past three to five years, portfolio management has become an increasingly popular and useful concept and process in both government and private sectors for helping business and IT executives manage IT. While experiencing widespread use in private industry for some time (e.g., the software tool staff assigned to NC also implemented it in BoA and Wachovia), it is receiving increasing attention at the federal level and NASCIO is researching its use in the states. We believe that we are one of the initial states ( if not the first) to implement it, at least on an enterprise scale. Portfolio management is an integral part of three of the seven initiatives highlighted in the State CIO’s IT plan. As described in the next slide, it is essential for meeting the General Assembly’s goals for better planning, budgeting, and management of IT in state government. The purposes of this briefing are to acquaint you with the basic concepts of portfolio management, explain how it is relate to and will be used in the IT planning, budgeting, and management processes of state government, and describe approaches for implementing the software tool in the departments. The presenters for this agenda are: Denny and Tom, Sharon, and Jim – describe which parts of the agenda they will give.

Four Intentions of Legislation for Better Management of IT Improve the planning for and budgeting of IT investments. Prepare better researched and more thoroughly developed project plans. Provide stronger project management and more appropriate oversight. Improve the inventorying and analysis of major IT assets. Better planning and budgeting: Identify and recommend worthwhile IT investments that support department initiatives and program goals and objectives, enable governmental innovations, facilitate new initiatives, sustain successful and cost-effective business operations, and/or maximize economic returns or societal value. Anticipate long-term personnel, infrastructure, and applications needs and forecast associated costs. Become more economical by sharing common technical resources and services and reducing duplication in like applications. Prepare better researched and more thoroughly developed project plans: Achieve efficiencies from business process reengineering and the consolidation of similar business activities. Realize a higher probability of success and a greater assurance of meeting business goals and objectives by providing more accurate estimates of efforts and costs, more realistic schedules, and improved assessments of risks. Provide stronger project management and more appropriate oversight: Improve performance in cost, scope, schedule, and quality. Increase reliability of achieving expected business results, projected benefits to citizens, and proposed value to the state Improved inventory and analysis of major assets: Includes applications, H/W, S/W, and network equipment. Determine business and technical status and develop best times and approaches for renovating, retiring, or replacing them to minimize risk of failure and optimize costs and benefits over their useful lives. Project long-term financial liabilities for renewals, upgrades, and replacements. .

History of Portfolio Management Initiative Summer 2004 – Ratification of legislation transferring many duties of the IRMC to the State CIO regarding investment review and project approval and oversight, with involvement of OSBM, OSC, and Sec. of Adm. Late 2004 – Purchase of UMT software tool from competitive bidding process. January 2005 – Begin software tool implementation project. February 2005 – Submission of State CIO IT Plan to the General Assembly – portfolio management is key component of three of the seven initiatives. April 2005 – Completion of extensive design phase involving agency staff participation in configuration of tool to meet state government use.

Overview of Portfolio Management Assists in the life-cycle management of investments - to determine where to invest and what to invest in; perform satisfactorily the acquisition and implementation of them; and decide when and how to renovate, retire, or replace them. Do the right things, in the right ways, at the right times, and for the right reasons. Analyzes and evaluates investments from individual and group perspectives - the group perspective compares and contrasts each investment relative to the others, considers interdependencies among the members of the group, and rates each individually and as a group. An analogy from the financial sector is the management and reporting of a 401(k) account with multiple investments. Guide and direct multi-level review and approval processes - to provide discipline, consistency, and rationality to collaborative decision making. The CIO’s project approval process is an example. An analogy is employee’s 401(k) report of the performance of each investment in the portfolio (individually and with the others) and the portfolio as a whole.

Overview of Portfolio Management Involves the following to enhance business/IT decision making activities: Techniques, methodologies, and practices. Governance process for rational and consistent decisions: Leadership. Organizational structures. Direction and processes. Automated support tool Guide process, perform calculations, prepare analyses, and produce reports. Decision support – not decision making - capability.

Use of Portfolio Management Concepts and Tool in State Government Identifying, analyzing, and prioritizing potential IT investments (investment portfolio management) – assist departments in evaluating alternative IT investment needs and opportunities and preparing funding requests. Approving and monitoring IT implementation projects (project portfolio management) – Streamline and improve the effectiveness of department and statewide approval and periodic (monthly) status reporting. Analyzing legacy business software (applications portfolio management) – Maintain a statewide database of current business systems and provide analytical capabilities for managing these, including the identification of those at-risk and the forecasting of long-term cost liabilities for replacements and renovations. It is not now much you spend on IT that dictates the business value or returns, but how the money is spent. More successful organizations spend relatively less on IT than their peers; however, they spend it on the right thins and in the right ways.

Framework for Managing IT Investments I. Strategic Business and IT Planning and Investment Selection and Budgeting (Linking IT Investments to Agency Missions and Business/Program Goals and Objectives, and Investment Portfolio Management) III. Investment Operation and Maintenance, and Renewal, Retirement, or Replacement (IT Service Management; Enhancement, Renovation, or Termination; IT Asset Management; and Applications and Assets Portfolio Management) Life Cycle of IT Investments The Framework is part of an overall program for the improved management of IT, so that it is acquired, implemented, and employed more cost-effectively. The Framework outlines an approach for helping business/program and IT executives and managers: Keep track of technology assets; Plan goals for using technology to meet business/program requirements. Determine when and how best to acquire and implement new technology. Develop approaches and performance measures for maintaining and operating in-place technology. Decide when to discard, replace or renovate duplicative, insecure, risky or inefficient technology. The Framework provides a conceptual scheme for the selection, implementation, operation, and retirement/replacement of IT investments. More specifically, IT assets must be: Justified on the need to fill a gap in the ability of agencies and the state to meet strategic program goals or business objectives or modernize technical infrastructure to provide more and better services at less costs. Selected and funded so that they offer the least life-cycle cost of alternative approaches, meet risk-adjusted cost and schedule parameters, and can be accomplished within personnel and fiscal resource availabilities, and provide desired and measurable benefits and value. Implemented in ways that demonstrate satisfactory progress toward achieving baseline cost, schedule, and performance/benefit goals. Operated proficiently to meet service level objectives, and maintenance and enhancements must be planned and conducted to optimize performance and cost-effectiveness over their useful lives. Reviewed continuously, and as appropriate, they must be replaced, retired, or renovated based on how close actual operating and maintenance costs are to desired budgets, whether performance and service levels meet operational goals, whether they continue to satisfy agency and user requirements, and whether they present unacceptable security vulnerabilities, and whether they are at-risk for failure. II. Project Implementation (Acquisition of Products and Services, System Development Life Cycle Methodology, Project Management Methodology, Agency and Statewide Governance, and Project Portfolio Management)

Investment Portfolio Management Theory dates to 1950s with the evaluation of financial investments on both returns and risks – led to the practice of diversification of capital assets. Since late 1990s, becoming popular in public and private sectors to help align IT investments with organizational missions and business priorities. Recognizes that the management of IT is a joint business and IT responsibility. Helps evaluate and rank potential investments using a variety of criteria – agreement with business strategies and goals (governmental priorities), costs, financial and societal benefits/value, project and business risks, architectural fit, accomplishable within fiscal limitations and staffing constraints, etc. Create new processes, procedures, and tools for the identification and justification of IT investments so that they: are synchronized with governmental initiatives, agency strategies, and business goals; are achievable within budgetary and personnel resource limitations; offer acceptable risk profiles; maximize financial returns and societal value; satisfy project interdependencies; and fit technical architectures.

Overview of IT Investment Portfolio Management in State Government Department Mission Statuary Mandates Governmental Initiatives Department Business Strategy & Department Business Architecture (Business Service Models) Business/Program Goals and Objectives Processing and Information Flows Organization Charts Business Reengineering Opportunities Applications Portfolio Management Asset Infrastructure Management New Initiatives Refreshment Cycles Security/Reliability Upgrades New Applications Infrastructure Additions/Upgrades Retirements Replacements Modernizations Maintenance A disciplined approach to “do the right thing” by identifying, evaluating, justifying, and selecting/recommending IT investments with the most benefits or value or meeting legal or regulatory mandates within budget constraints, staffing limitations, and risk considerations. IT Investment Portfolio Management Identify potential investments and evaluate candidates against defined criteria Prioritize projects based on analysis results (relative weighted scores) Balance staffing and fiscal resources Determine disposition – invest, adjust, or sunset Current IT Project Portfolio Other Plans and Strategies State CIO IT Plan Statewide IT Initiatives Department & Statewide Tech. Architectures Department IT Plan Status of all projects (schedule, budget, business objectives, etc.) Projects no longer relevant or with lower priorities Projects with higher priorities or increased urgency Funding Requests and Project Approvals

Objectives of Project Portfolio Management Advance the management of IT implementation projects: Clarify roles and responsibilities. Provide for well understood and comparable oversight. Ensure projects are: Planned well and researched thoroughly prior to starting – business case. Managed and monitored proficiently to achieve budget, schedule, scope, and quality expectations - dashboard. Completed successfully so that business goals and objectives are realized - post-implementation assessment/closeout review.

Project Portfolio Management Covers roles and responsibilities for project approval and monitoring. Applies to review and approval processes at both department and statewide levels – integrated workflow. Defines phases of project development, with review points (called gates) at predetermined intervals for approvals to proceed.

Project Portfolio Management Approval points (gates) are positioned to: Ensure projects are positioned for success before proceeding to succeeding phase. Verify business cases are still viable based on governmental events and realities and project progress since funding. Monthly status reports monitor costs, schedule, staffing, and results against plans and budgets. Governance process that builds upon – but does not replace – the disciplines and techniques of system development life cycle methodologies (e.g., IEEE model) and project management methodologies (e.g., PMI model). An approach to “do the right thing right”. Regarding the last point, portfolio management enables measurement and evaluation for each project alone (project dashboard), relative to other projects, and the portfolio/group (portfolio dashboard). It also allows for the multi-level governance review and approval.

Objectives of Applications Portfolio Management Develop and maintain a comprehensive database of major state software applications to assist in managing them, including: Identifying present technical and business status. Determining best approaches and ascertaining the priorities and timeframes for remediation/renovation, retirement, or replacement. Estimating associated costs – future liabilities.

Management of Legacy Applications – Example of Risk Management December 24, 2004 – Comair’s 18-year-old flight crew management systems failed: All 1,100 flights cancelled Christmas day, and Comair did not return to full schedule until December 29 – total 3,900 flights cancelled or delayed. 200,000 passengers stranded at cost of $20 million, and image and reputation tarnished – key executives replaced. No backup system – plans for replacement in works for 7 years, but no implementation. System had a critical flaw that was not known – could handle only 32,000 crew changes/month – tipping point reached Christmas Eve due to snow storm.

Management of Legacy Applications – Business Value Percent of Total IT Spending Business Value of Investment Expenditure Type Infrastructure to run the business and maintenance of legacy applications 47% Low New Applications: Utility Enhancement Frontier Total 53% 21% Low 21% Medium 11% High 100% Two-thirds of spending (infrastructure and utility applications) gives one-third of business value – need to reverse this ratio (reduce percents on these and increase percents on enhancement and frontier applications) as much as possible.

Issues Surrounding Systems Obsolescence and Risk Over time, sustainability of applications becomes questionable due to age and technology advances, combined with changed business needs. They no longer: Support business goals and objectives, are cost-effective to operate or maintain, and/or are risk-acceptable by presenting too great a likelihood of failure with cataclysmic consequences. Business Issues Impediment to the implementation of new and more cost-effective service delivery models Becomes a constraint in meeting regulatory requirements Staffing issues - Unavailability of Skills Unavailability of staff skills to maintain or integrate with application Unavailability of third-party vendors Dependency on individual contractors Technology issues Expired warranties, with no vendor support Cannot handle increased usage or volumes of data Does not run anymore on available platforms Used beyond original intent, and cannot be enhanced Cannot meet security, privacy, or confidentiality requirements System can fail, with untraceable error Sources of Risks Seems to run forever, but ultimately has a finite business, economic, and/or technical life

Legacy Applications Study - Statewide Findings In the portfolio of approximately 900 applications: 40% are considered critical for department mission/strategy and 17% are enterprise (statewide) applications. The statewide portfolio is relatively young, with an average age of 7.5 years. Health status is: 23% presenting functional, technical, or both problems; 50% with some problems, but manageable; and 27% healthy. Remediation timeframes are: 11% require action immediately (within next two years), 35% require action in the near term (2 to 4 years), and 54% require action in the long term (4 to 6 years). Although the immediate needs of the portfolio appear to be manageable, projections of its future status if no remediation actions are taken indicate an increasingly deteriorating condition as the applications age – pay some now or pay a lot later.

Gartner Perspective on Portfolio Management Portfolio management approaches are maturing across the industry, and significant savings or budget reallocations are not uncommon Enterprise Architecture Strategic Planning Application Portfolio Management Investment and Project Portfolio Management Drives Supported by Impacts Influences IT Mgt and Governance Key IT Management Processes Benefits of portfolio management to the state: Help align IT investments with department strategies and priorities, business goals and objectives, IT plans, and enterprise architectures. Facilitate the establishment of processes and clarify decision-making roles and performance accountabilities for managing IT investments as a joint business/IT responsibility. Assist in measuring, recognizing, and understanding the value of IT for meeting department missions and providing benefits and value to the state and its constituents – Transition the perception of IT from a cost center to be controlled to the role of a strategic and mission-critical enabler of business innovation and transformation. Streamline and simplify department and statewide IT investment management and oversight activities. Source: Gartner Research

Key Points Portfolio management is a business responsibility: Review current projects and their status for continued viability, priority, and staffing and fiscal resource commitments. Review staffing and fiscal commitments to applications and infrastructure maintenance and renovations/upgrades for benefits and priority. Present new investment recommendations. Reprioritize portfolios based on needs and resources. Examine completed projects for effectiveness and performance against business goals and objectives. IT investment management is a joint business and IT responsibility – ensure IT sustains and extends the enterprise’s mission and objectives in a planned manner. Regarding the second point, IT must deliver applications and infrastructure to meet business needs and user demands.

Portfolio Management Tool – Implementation Priorities First priority (Summer 2005) is project approval and monitoring – streamlining and simplifying of present processes: Important ongoing activity. No change in underlying concepts and principles, but better way of managing and communicating. Immediate benefit to projects, departments, and oversight organizations. Second priority (Fall 2005) is legacy applications – transfer of study data to tool and department update of information: Validate study findings, especially for immediate action applications. Begin cost estimating efforts for submitting long-term liabilities to General Assembly.

Portfolio Management Tool – Implementation Priorities Third priority (Winter 2005-06) is planning and budgeting – investment analysis and funding requests: Involves more sophisticated techniques and analysis activities (portfolio optimization and staffing resource scheduling). Less pressing timetable, as follows budget cycle. Some departments have volunteered to test these capabilities further before statewide rollout.

Training Approach Theory and Concepts of Portfolio Management (the “Why”) Hands-On with Tool (the “What” and “How”) Overview Briefing Abbreviated Hands-On Tool Course Two sessions lasting 11/2 hours each May 23 CIOs, CFOs, CBOs, etc. Understanding of key principles and practices 4 sessions lasting 3 hours each June 23 and July 13. CIOs, CFOs, CBOs, etc. How to use tool to perform reviewer and approver jobs – its capabilities and features Conceptual Portfolio Management Course Hands-On Tool Course Three sessions lasting 3 hours each June 6, 10, and 13 PMs, QAs, Architects, etc. Understanding of key principles and practices Major concepts and uses of business cases 11 sessions lasting 6 hours each June 13-16, 20-22, 27-28, and July 7 and 14. PMs How to use tool to perform project manager jobs – its capabilities and features People with Assigned Licenses and Attendance Slot Limitations Prerequisites and no Attendance Limitations

Implementation Schedule Convert current 34 projects in portfolio (does not include registrations) with required information fields Convert latest monthly status report for the 34 projects in portfolio (risk will only be High, Issues will only be Open, MS Project file conversion if provided) Exceptions – projects ending by August, 2005 will not be converted to the tool For those trained by June 24 –monthly status will begin with report due in mid-July For all others – monthly status will begin with report due in mid-August All SB 991 Approvals must be entered using the tool once trained (after 7/15/2005, all SB 991 approval requests must be through the tool) After 8/31/2005, all monthly and quarterly status reports must be entered using the tool