1. Implementation of Application Portfolio Management
IT Advisory Board Meeting
January 2006

2. Framework for Managing IT Investments
III. Operation, Maintenance, and Renewal, Retirement, or Replacement Applications Portfolio Management - APM
I. Strategic Business and IT Planning and Investment Selection and Budgeting
Investment Portfolio Management - IPM
Life Cycle of IT Investments
Three basic phases of North Carolina’s overall effort, with some overlap.
We decided to do Project Implementation first. Already completed.
Concept -- Build and Implement in the Right Manner
Now implementing III – Applications Portfolio Management
Goal -- Maintain in the Right Ways and Retire or Replace at the Right Times
Investment Portfolio Management will be done last.
Concept -- Build, Buy, and/or Implement the Right Things
Operate and maintain assets so that:
Benefits/costs are optimized over their operational useful lives
Services offered meet availability, reliability, security, quality, and recoverability expectations within acceptable budgets
Retirements and replacements are done when they are no longer cost-justified or risk-acceptable
II. Project Implementation
Project Portfolio Management - PPM

3. Framework for Managing IT Investments
III. Maintain Operate Assets in the Right Ways and Retire or Replace Them at the Right Times
I. Build, Buy, and/or Implement the Right Assets
Identify investments that best:
Enable governmental initiatives or agency missions and strategies
Result in financial returns – revenue generation or cost savings
Provide better constituent services or program effectiveness
Fit technical architectures
Satisfy budget, staffing, and other constraints
Meet risk profiles
Operate and maintain assets so that:
Benefits/costs are optimized over their useful lives through astute and timely renovations, consolidations, or eliminations
Services offered meet availability, reliability, security, quality, and recoverability expectations within acceptable budgets
Retirements and replacements are effected when assets are no longer cost-justified or risk-acceptable
Life Cycle of IT Investments
II. Build and Implement Assets in the Right Manner
Manage projects by:
Clarifying roles and responsibilities
Providing appropriate oversight
Ensuring they are well planned and thoroughly researched prior to starting
Defining, tracking, and evaluating project progress frequently to achieve budget, schedule, scope, and quality expectations
Completing them successfully so that business goals and objectives are realized

4. Portfolio Management is…
Information analyzed in a way that helps decision makers optimally allocate scarce resources.
The purpose is to weigh key factors, such as desired returns or public value, initial and life cycle costs, architectural directions, and risk profiles to meet strategic business goals more effectively and productively.
The objective is to make fact-based, data-driven decisions using a consistent and disciplined approach.

5. Major Portfolio Management Tasks
Inventory and classify items in the portfolios.
Perform relevant analyses – identify problems and opportunities, develop viable options, determine relevant criteria, ask the right questions, and evaluate alternatives using pertinent information.
Make decisions.

6. Overview of IT Portfolio Management
Agency Missions and Vision and Business Goals and Objectives
Develop Business Drivers and Business Cases
Investment Portfolio Management
Identify Problems and Opportunities
Statewide and Agency IT Plans
Analyze Candidate Investments
Project Proposals for Applications Renovations, Retirements, or Replacements
Select and Plan Investments
Funded New Projects
Manage Portfolio
Adjust Project Portfolio
Analyze Portfolio
Application Portfolio Management
Optimize Portfolio
Assess Value of Projects and Portfolio
Project Portfolio Management
Manage Portfolio
New or Renovated Applications
Implement Projects
Build and Maintain Inventory

7. Status of Implementation of Portfolio Management
Phase/Type of Portfolio Management Effort
Implementation Status and Timeframe
Topic Research and Purchase of Tool
Completed – performed in 2004 and early 2005
Project (PPM)
Completed – performed summer and fall 2005
Applications (APM)
In process - winter and spring 2006
Investment (IPM)
In process - initial efforts in winter and spring 2006 as part of applications endeavor; more advanced capabilities will be implemented later as agencies are ready and need them

8. Project Portfolio Management
Provides a workflow process that encompasses project approvals, checkpoint reviews, and periodic status reporting at project, agency, and statewide levels
Provides a “gated” review approach to ensure work done acceptably and project is in position to complete the succeeding phase successfully.
Offers documents and administrative management capabilities that follow industry recognized best practices for system development life cycle (IEEE) and project management (PMI)
91 projects with estimated cost approaching $850 million being tracked in December 2005

10. Project Portfolio Dashboard

11. Applications Portfolio Management
Collects and analyzes cost, benefit, and strategic value information to evaluate the TCOs of retention, enhancement, or replacement alternatives
Evaluates assets by determining business and technical status; developing remediation, retirement, or replacement approach; and ascertaining priority and timeframe for action
Develops cost estimates for asset modernization, and retirement (with and without replacement) and total statewide
Identifies vulnerabilities, criticalities, return-to-service needs, dependent business processes, public services offered, supporting technical infrastructure, etc.
Applications swallow cost, time, and management bandwidth, while increasing risks – unless they are well managed to reduce complexity and risk and retired or consolidated in a timely fashion, the entire IT budget will be operations and DR/BCP will be unaffordable
Creating a portfolio view of existing applications does not have to be complicated; focus on the basics and the big picture – let the software tool highlight problem areas and offer improvement opportunities for management decision making
Benefits of APM are clear;
Investment decisions for elimination, replacement, or remediation are made in a consistent manner considering application risks, value/importance to organization and its priorities, most effective use of personnel, and life span optimization of costs/benefits
IT complexity is reduced; thereby, maximizing business value received while minimizing IT costs incurred
Planning for DR/BCP is facilitated to ensure continuity of operations
Risks are managed, and stewardship for assets is facilitated

12. Applications Portfolio Management Builds Upon Legacy Study
In the portfolio of approximately 900 applications: 40% are considered critical for department mission/strategy; 17% are enterprise (statewide) applications; and 75 of the applications processed by the state data center require 1-day return-to-service capability.
The statewide portfolio is relatively young, with an average age of 7.5 years – since 1997, from 70 to 90 new or replacement applications have been added each year to bring down the average age.
Health status is: 23% presenting functional, technical, or both problems; 50% with some problems, but manageable; and 27% healthy, with a prescription for continuing on-going operations and maintenance.
NC is not Alone in Implementing APM - Gartner Prediction for 2006
Gartner predicts that 40% of large public and private enterprises will implement application portfolio management in the next two years. The reason for the rapid growth in the use of APM is other companies and government entities have achieved successes in cost reduction, managing the complexities of hundreds of established assets, and improving budget process effectiveness.
Applications portfolio management is critical to understanding and managing the 40 percent to 80 percent of IT budgets devoted to maintaining and enhancing software. Most organizations don’t track established applications over time to ascertain return on investment (or to determine which should be disposed of), and few manage application portfolios with tools. In other words, these organizations haven’t truly associated the substantial amount of money they’re spending with what they are spending it on.

13. Application Portfolio Management Perspectives
Level IV (Step 4)
Alignment (Optimize Portfolio)
Process Inventory, contribution, function association
Core Business Drivers, priorities, process contribution
Initial
Deployment
Focus
Level III (Steps 2 and 3)
Financial (Analyze and Manage Portfolio)
Detailed application-level costs and cost-effectiveness analyses
Level II (Steps 2 and 3)
Assessment (Analyze and Manage Portfolio)
Risk, Operational Performance, Architectural Fit
Scope of Keane-Gartner Study
Level I (Step 1)
Inventory (Build and Maintain Inventory)
Application identity and basic information

14. Applications Portfolio Management Process
Transition to Executive Decision Making Process
Funding Requests
Tool Assisted Decisions
Subjective Business Decisions
Step 1 – Level I
Collect, Validate, and Maintain Data
(Build and Maintain Inventory)
Step 2 – Levels II & III
Perform Assessments
(Analyze Portfolio)
Step 3 – Levels II & III
Determine Dispositions and Life Span Transition Roadmap
(Manage Portfolio)
Step 4 – Level IV
Determine Priorities, Timeframes, Costs, and Benefits
(Optimize Portfolio)
Investment Portfolio Management (IPM) Process
One-Time Work
Transfer data from Keane/Gartner study
Perform initial collection and validation of remaining data
Ongoing Work
Perform data changes and validations as they occur
Collect and validate data for implementation projects transitioning to applications assets
Major Data Elements ID
Costs
Business criticality
Business processes enabled or supported
Functional quality
Technical quality
Risk profile
Identify
Business problems/issues
Technical problems/issues
Risk vulnerabilities, probabilities, and impacts
Other problems/issues
Evaluate
Status/Health (Good, Bad, Moderate)
Value to organization (High, Moderate, Low)
Risk of unrecoverable failure (High, Medium, Low)
Identify
Dependencies on other applications and projects
Costs/fiscal requirements
Technical infrastructure requirements
Benefits/value to accrue
Alignment with state/agency priorities
Confirm and/or Develop
Implementation approach
Determine Priorities and Timeframes
Select priority for action (High, Medium, Low)
Select timeframe for action (Immediate, Near-Term, Long-Term)
Potential Benefits for Selected Actions
Cost savings from consolidate/eliminate applications
Improvements in public service, reliability, recoverability, and security resulting from functional/technical renovation or replacement
Consider
Cost-effectiveness
Risk acceptability – status of
Identify
Problems/opportunities
Alternative approaches
Best actions for managing application over expected life spans
Mission criticality/importance to agency
Determine Whether To
Invest additional funds (technical or functional enhancement or replacement)
Sunset/eliminate
Consolidate
Replace and consolidate as part of an agency wide or state wide initiative
Continue maintenance

15. Investment Portfolio Management
Identifies a pool of IT investments that best support core mission functions and prioritized business needs, best fit with approved architectures, have acceptable risks, and are accomplishable within fiscal and personnel limitations
Requires high quality business cases that increase probability of successful outcomes (on budget, within schedule, and meet user and stakeholder expectations)
Enables collaboration and transparency between IT/non-IT executives via an integrated process and better managed decision making activities that optimizes program benefits and public value throughout the enterprise

16. Overview of IT Investment Portfolio Management in State Government
Department Mission
Statutory Mandates
Governmental Initiatives
Department Business Strategy
Business/Program Goals and Objectives
Processing and Information Flows
Organization Charts
Business Reengineering Opportunities
Department Business Architecture
(Business Service Models)
Application Portfolio Management
Asset Infrastructure Management
New Projects
Retirements
Replacements
Modernizations
Maintenance
Refreshment Cycles
Security/Reliability Upgrades
New Applications
Infrastructure Additions/Upgrades
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
This chart is an illustration of what is accomplished in Phase I of NC’s Framework for the Life Cycle Management of IT Investments.
The intent is to create new processes, procedures, and tools and employ a disciplined approach for “doing the right thing” by identifying, evaluating, justifying, and selecting/recommending IT investments (projects) that are: synchronized with governmental initiatives, agency strategies, and business goals; are achievable within budgetary constraints and personnel resource limitations; offer acceptable risk profiles; maximize financial returns, citizen benefits, and societal value; satisfy project interdependencies; meet legal or regulatory mandates; and comply with technical architecture standards.
The traditional functions for IT were:
Standardize and automate business processes.
Reduce unit transaction costs.
If those are the limits of our successes, IT will become irrelevant to the strategic goals of the enterprise, devolve to a utility function that, will be categorized and treated as a cost center, and will go to the cheapest provider of services, which probably will not be in the US.
Rather IT must become a valued partner with the business to meet the more demanding challenges of increased globalization, uncertain economics, greater public expectations for more and butter services at less costs, ever expanding governmental initiatives.
Status of all projects (schedule, budget, business objectives, etc.)
Projects no longer relevant or with lower priorities
Projects with higher priorities or increased urgency
State CIO IT Plan
Statewide IT Initiatives
Department & Statewide Tech. Architectures
Department IT Plan
Funding Requests and Project Approvals

17. Document Business Cases Investment Prioritization
Steps for Evaluation of Alternative Investments
Build candidate investment portfolio using a consistent business case framework
Develop and prioritize Business Drivers and Impact Measures 1 2
Document Business Cases
Business Drivers
Evaluate the relative impact/linkage of candidate investments on Business Drivers
Understand project priorities - based on strategic linkage(business drivers) - to strengthen transparency of rankings for decision making
Business Drivers 3 4
Investments
Business Alignment
Investment Prioritization

18. Investment Implementation Sequencing Portfolio Optimization Curves
Steps for Evaluation of Alternative Investments
Evaluate multiple variables in concert before making investment/portfolio selection decisions (e.g., priority, cost, benefits/value, architectural fit, and risk)
Optimize investment sequence (schedule) by analyzing key staff competencies, supply/demand by month, and regulatory deadlines against the strategic value of the selected portfolio 5 6
L - Priority - H
Investment Implementation Sequencing
Portfolio Analysis
Cost
Mathematically calculate the best portfolio selection of investment opportunities considering value/benefits offered for costs incurred under selected constraints 7
Portfolio Optimization Curves

20. Timeline for Implementation and Use of Application and Investment Portfolio Management Capabilities
Legend
SCIO Deliver Interim Legacy Assessment Report to General Assembly for 90 Projects Needing Immediate Attention
APM – Applications portfolio management
IPM – Investment portfolio management
SCIO – State CIO
Agency Submissions to SCIO: 1) Legacy Assessments, 2) Agency IT Plans, and 3) Expansion Budget Requests
Agencies Assess Study Findings for 90 Immediate Attention Applications and Report Status, Remediation Approach, and Needs for Assistance
Submissions to General Assembly:
Governor’s Budget Package
SCIO – 1) Statewide Legacy Assessment, and 2) Statewide IT Plan
SCIO Review Agency Expansion Budget Requests, Prepare Statewide Legacy Assessment, and Write SCIO IT Plan
Agencies Perform Legacy Assessments, Develop IT Plans, and Prepare Expansion Budget Requests
APM Configuration and Agency Rollout Plan Development
APM and IPM Rollout to Agencies
Four Months
Five Months
Implement APM and IPM
Use APM and IPM
Jun 2005
Sep 2005
Jan 2006
Mar 2006
Apr 2006
Jun 2006
Aug/Sep 2006
Due Date
Jan 2007
Jun 2007
Jan 2008
Today
2005 –2007 Biennial Budget
2007 –2009 Biennial Budget