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Aligning IT with Business Strategy

  • March 7, 2007
  • By Marcia Gulesian
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Research shows clearly that businesses that feature a systematic portfolio management process, regardless of the specific approach, out-perform the rest. Having some portfolio management approach in place seems to be even more important than the details of which tools and metrics one chooses.

However, businesses' whose portfolios are selected by relying heavily on financial tools as the dominant portfolio selection model sometimes fare worse than those that rely heavily on other kinds of tools, because financial tools can yield an unbalanced portfolio of lower-value projects and projects that lack strategic alignment. By contrast, strategic methods, correctly applied, do produce a strategically aligned and balanced portfolio.

It is ironic that the most rigorous techniques—the various financial tools—yield the worst results, not so much because the methods are flawed but simply because reliable financial data are often missing at the very point in a project where the key project selection decisions are made. Often, reliable financial data (expected sales, pricing, margins, and costs) are difficult to estimate in many cases because the project team simply has not done its homework or makes highly optimistic projections in order to secure support for its project. (See References 1-3)

The portfolio management solution discussed here is an objective process that enforces a rational rather than emotional (or political) approach to portfolio selection, helping to ensure that the selected investments are aligned with the organization's strategic priorities and will maximize return on investment.

This solution involves the use of tools such as Microsoft Project Portfolio Server 2007 to gain visibility, insight, and control across project, program, and application portfolios as well as analytic tools to improve decision making. My discussion will conclude with a brief discussion of actual face-to-face, teleconferenced, and virtual meetings, the latter two using Cisco TelePresence 3000 and Microsoft SharePoint 2007, respectively.

A popular term for the process of guiding the portfolio is governance. This is especially so in the information technology area, where the term IT governance is becoming synonymous with Project Portfolio Management.

Automate the Governance Process

Tools are needed to automate the governance processes across the organization to subject each project to the appropriate governance controls throughout its entire life cycle. That is, you need to measure and track portfolio performance to help ensure that the portfolios are managed effectively and realize the forecasted benefits.



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Figure 1. Example of a configurable workflow

As shown in Figure 1, each workflow is composed of a series of life cycle steps (such as Propose Idea, Initial Review, Complete Request, Request Review, Portfolio Selection, and Selected) which in turn are mapped to governance phases. The governance phases are used as common denominators to aggregate and report on projects across various workflows.

The phases and workflows establish a blueprint for your organization's governance framework and help ensure all projects complete the necessary deliverables and receive managerial sign-off before moving to the next life cycle step. This audit functionality keeps stakeholders aware and accountable as projects move from business case creation to consideration to implementation.

Prioritization

With potentially hundreds of projects, programs, and applications competing for the same limited budget and resources, formulating common scoring criteria is essential to effectively prioritize and evaluate the competing investment proposals.

Using the embedded best practice prioritization methodologies and tools described below, executives can derive common scoring criteria for projects, programs, and applications, enabling "apples-to-apples" comparisons among dozens or hundreds of competing investments.

One of the most critical tasks in the portfolio management process is to define and prioritize the organization's business strategy (as opposed to prioritizing individual projects). A pair-wise comparison matrix—discussed below—can be used to help executives objectively prioritize business strategy for the upcoming planning horizon.

Build Consensus Among Executives

In most organizations, executives from distinct functional domains will have different perspectives on which business drivers are most important to the business. A vice president of sales might consider "increase market share" and "develop new products" the most important business drivers, while a CIO might consider "maximize systems uptime" and "modernize enterprise infrastructure" the most important. In organizations where executives will be competing for the same budget and resources, achieving consensus is critical.

In a facilitated business strategy prioritization workshop—conducted in face-to-face meeting or meetings that are distributed in space and time—the executives collaborate to complete the pair-wise comparison matrix and assess the importance of each business driver against the others for the upcoming planning period to help drive consensus and calculate the business driver priorities. For example, in Figure 2, is "Expand into new markets and segments" more important when compared to "Improve Customer Satisfaction"?



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Figure 2. Business driver pair-wise comparison matrix

In Figure 3, you see the resulting consensus on relative business priorities for an organization. It is very important to note that these derived driver priorities are relative scorings and not simply ranked from number 1 to number 7.



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Figure 3. Derived relative priority of business drivers

Calculate Scores for Strategic Value, Risk, and Financial Return

Make use of best practice techniques to automatically derive prioritization scores such as strategic value, financial value, risk, architectural fit, and operational performance in order to objectively assess projects, programs, and applications.

Project and Programs—Best practice prioritization scores include:

  • Financial Value: Calculate a project's financial value (ROI, net present value (NPV), internal rate of return (IRR)) based on the cost and benefit estimates captured in each business case.
  • Strategic Value: Objectively derive a strategic value score for each project in Portfolio Optimizer based on the project's impact on the business strategy (see Figures 4 and 5).
  • Risk Assessment: Calculate a risk score for each project derived from the risk assessment questionnaire.



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Figure 4. Example of project to driver impact assessment

One of the most important project assessment scores is the strategic value score, which calculates the project's value to the business. Using the impact matrix shown in Figure 4, each project is evaluated against each business driver and rated on a 5-point scale (for example, "no impact," "low impact," "moderate impact," "strong impact," and "extreme impact") depending on the project's contribution to quantitative key performance indicators (KPIs) defined for each driver. This process derives a strategic value score for each project shown in Figure 5.



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Figure 5. Example of a strategic value priority scores for projects

Applications—Best practice assessment attributes include:

  • Business Importance: Objectively derive a business importance score for each application.
  • Architectural Fit: Map each application against the organization's architectural strategy and standards, and calculate an architectural fit score.
  • Risk Assessment: Calculate an application's risk using the Portfolio Builder risk questionnaire.
  • Operational Performance: Automatically derive an operational performance score for each application based on a performance questionnaire in Portfolio Builder.

Of particular note, the business importance of an application is computed by using a three-step prioritization process. This prioritization technique uses the pair-wise comparison matrix to prioritize business drivers, and then uses two impact matrices to first assess each business process's contribution to the success of each business driver, and second to assess the level that each application supports each business process. This three-step process results in a business importance score for each application in the portfolio. Application contributions to business processes are best rated as a percentage of the process that is automated by the application (see Figure 6). The sum of application contributions to one process must be equal to or less than 100 percent.



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Figure 6. Example of an application-to-business process impact assessment





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