2. 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 ~

3. 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

4. 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.

5. 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.

6. 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.

7. 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

8. 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

9. 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

10. 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.

11. 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 $ 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

12. 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.

13. 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.

14. 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

15. 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

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