Term Paper on "Information Technology (IT) Portfolio Management Systems"

Term Paper 15 pages (4890 words) Sources: 1+

[EXCERPT] . . . .

It Portfolio Management Systems

Portfolio management in it is a system that enables organizations evaluate technology systems available at a point of time or planned for the future and leverage them for improvement in performance. There are different portfolio systems - the application portfolio management, which deals with current it resources and project portfolio management, covering proposed it investments. The it portfolio management market is still in its early days and estimated to be worth U.S.$15 million today. Since the concept is catching the fancy of information technology specialists, it is projected that the portfolio management tools market will expand rapidly. Forrester Research claims that the market will grow to over U.S.$400 million by 2008, while a few others such as the Meta Group are even more bullish, predicting that this market will grow to U.S.$480 million by the end of 2005 itself. Gartner Research has claimed that about 70% of its clients are working with some form of it portfolio management system, especially in the last eighteen months. (CIO Information Network, 2004)

Need for portfolio based it management:

One of the major reasons for the exponentially growing interest in the portfolio approach is technology advancement. The nineties witnessed companies in many fields invest and acquire technology at a rapid pace, leading to considerable gaps in investment and implementation. To take it further, companies found that it took a lot of time for the new it investments to be actually installed and used regularly within the establishment, by which time, new technologies or upgrade versions emerged, requiring further incremental investments. This led to wastage of resources and failure to achieve the projected results. However, the grim realities following the crash of the it markets across the world since the start of 2000, has forced top management of all companies, big and small, to cut budgets for it spend and demand greater justification from the it managers for new investments. (CIO Information Network, 2004)

Consequently, it managers started making a centralized evaluation of the resources they have on hand and determine their value, before they plan for new systems. It is in this context that it portfolio management is a powerful tool that enables Chief Information Officers to make informed decisions on investment decisions and also what best could be done with the investments already made in the past. Increased productivity is perhaps the major factor that draws it managers towards having a comprehensive portfolio system. This means the it department can aim to achieve more at lower costs, which will directly contribute to the bottom lines of companies. For example, British Bank Abbey National has achieved 20-30% higher programmer productivity by using portfolio management, as documented in a Forrester Research Report. An even more compelling driver is that portfolio systems have a return on investment factor in months and not in years, usually the case with most investments. (CIO Information Network, 2004)

The concept of it portfolio management is an off-shoot of the basic management principle that investment decisions in business should be based on the perceived returns. In traditional businesses such as manufacturing, infrastructure and trading, investments are made based on the value they can provide to the firm. It is common logic that it investments should also be aimed at maximizing value for the firm in proportion to the level of investments. Real estate, financial instruments, investments in equity and commodities are managed in portfolios. This provides investors and managers to maximize returns by choosing from a range of investment options and also the flexibility to make wholesome or discrete investments, depending on the risk-return profiles that they are comfortable with.

Elements of a good it investment:

The attributes of a rational it investment stems from the outcome of assessment of the available resources and the requirements of the business, current and future. From the perspective of portfolio management, a potential it investment should have most of these attributes - functionality, interoperability, scalability, portability, reusability, availability and serviceability. On top of these, is integration, which is the alignment of the new investment with the existing systems. The investment idea, systems and implementation may be good, but if there is no proper integration then the value of the new investment would not be as expected at the time of conception. On the other hand, fresh investments and modifications in the existing resources may be essential to ensure integration of the new projects.

Value of it investments:

When organizations are confronted with proposals for investments in it, perhaps the first question relates to the value that such investments will bring to the business. Therefore, the portfolio approach demands evidence of business value, which requires a good understanding of the impact which the it investment can possibly make on the current business dynamics. One of the basic steps is to unravel the relationship of the it initiative on the business requirements and processes, criticality of the proposed system, creation or upgrading fresh it infrastructure and the internal and external consequences of the initiative. The total business value is the sum benefits of these elements and it can also be supported by intangible benefits. Another key measure is the financial value of the investment. This requires in-depth financial analysis, involving computation of return on investment, internal rate of return of investment, net present value of the investment and cost-benefit analysis. If the projected benefits of the investment meets or exceeds the professional financial norms, then the project is more likely to be approved.

Costs of it investments: There are several costs incidental to it systems and many of them have to be incurred, irrespective of the fact that benefits are realized or not. There are tangible costs and intangible costs leading to the conclusion that costs can be either expected or hidden. The it expenditure is generally split into development and operational costs, within which there is a further break-up of individual costs. (Hochstrasser; Griffiths, 1990) These include costs for hardware, software, installation, operating and maintenance, networking, security, training and environmental costs. The portfolio approach seeks to identify all costs in advance and also monitor the spending in tandem with the returns. Cost control and reduction can lead to improvement in profitability and hence this area is of importance in the it portfolio management system.

Impact of portfolio-based management: Portfolio based it systems can impact business at the national level. For instance, the United States has a special provision for portfolio based it management in its Information Technology Act. It is aimed at successful management of the entire spectrum of technology investments, covering the country's infrastructure as well as the it portfolios relevant to specific firms. The approach concerns with the stewardship of the full range of it investments and ensure greater response to the changing needs of the people and businesses. A typical portfolio based it management provides a framework encompassing key factors relating to design, sourcing, implementation and maintenance of it systems. These include:

Relevant and complete information about a firm's operations is available before making it investment decisions

Development of it systems based on well defined business requirements within the applicable legal framework

IT investments to be under the ambit of executive focus and management must ensure compliance with statutory requirements as applicable

Any project requiring significant investment should be based on the results of a comprehensive risk analysis

Complex projects to be fragmented into smaller modules so that each module can be progressively added

IT sourcing to be driven by solutions that will improve business and not just based on technology up gradations.

Elements of it portfolio:

The principal objective of it portfolio management is to view all it resources as an investment portfolio. One of the unique features is that a good portfolio would respond to the various parties involved - the agency's technical and business managers, government agencies, relevant government officers and the legislature. Information in an it portfolio is organized in different ways, depending on the agency requirements, without imposing additional burden on the existing systems. The focus is on the opportunities and the problems that arise due to the agencies current and planned it strategies. Thus, the portfolio would contain information on the agency's business objectives, processes and strategies. Obviously, detailed information on the agencies hardware, software, networking facilities and technical expertise and staff capabilities. The software and system applications that support the agency's business operations and programs find a place in the portfolio. Cost of the current investments and how the cost structure would change due to the planned investments are also of crucial importance to the success of the portfolio. It is also pertinent to note relationships with other organizations can also impact the portfolio.

Integration of it and business strategies:

The tendency to view it as an area distinct from the core business is still prevalent in many organizations. This leads to differences in the it objectives vis-a-vis the business objectives within the organization. In other words, there is no alignment between the it and business functions, as a result of… READ MORE

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