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Aligning IT with Business Strategy

  • March 7, 2007
  • By Marcia Gulesian
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Optimize Budget and Align Investments with Business Strategy

When you select your project or program portfolio for the upcoming planning horizon, you want to optimize budgets and recommend portfolios that best align with your organization's business strategy. In short, you want to determine the optimal portfolio under budgetary and business constraints.

Faced with limited budgets year after year, IT and business executives must thoughtfully and effectively allocate resources to the highest value portfolio of project and program investments. By using sophisticated algorithms and embedded best practices in the Portfolio Optimizer module, you quickly can determine the optimal project or program portfolio under varying budget and business constraints (for example, cost and inter-project dependencies) while helping to ensure that the selected portfolio aligns with your organization's business strategy and delivers the maximum financial value.

  • Run What-If Analyses: Apply varying cost and resource constraints, optimize and dynamically assess the impact on the proposed project or program portfolio. The intuitive interface in Portfolio Optimizer enables analysts to run multiple what-if analyses and compare the results in a side-by-side table (see Figure 7). The optimization algorithm identifies the optimal portfolio under the given constraints, selecting projects or programs that have the highest value/cost ratio.
  • Consider Dependency Constraints: The Portfolio Optimizer optimization algorithm identifies the highest value portfolio while considering complex inter-project dependencies.
  • Force in Compliance or Pet Projects: Portfolio Optimizer enables analysts to force in mandatory projects, or even "pet" projects, overriding the optimization algorithm to ensure these projects are included in the resulting portfolio. This analysis technique enables you to rapidly assess the impact on the portfolio's business value and effectively communicate the tradeoffs of including these mandated projects within the portfolio.

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Figure 7. An example of optimization what-if analysis

Break Portfolio Constraints with Efficient Frontier Analysis

Efficient Frontier modeling enables analysts to visually identify the project or program portfolio that will deliver the maximum strategic value under varying constraint thresholds (such as $5 million budget or $10 million budget). Each point on the Efficient Frontier represents a different bundle of projects (or programs) from the proposed portfolio. The Efficient Frontier represents the best value. For example, in Figure 8 you can see that with a $36 million budget you can achieve approximately 72 percent of the portfolio's total potential strategic value, although the current portfolio solution is only achieving less than 60 percent. Organizations can use the Efficient Frontier in two ways:

  • Identify the point of diminishing return: Find the point where the curve begins to flatten, indicating you are paying a lot more to achieve a disproportionate amount of strategic value.
  • Benchmark the selected portfolio against the Efficient Frontier: Compare the position of the selected portfolio in relation to the efficient frontier.

In reality, due to varying constraints (for example, interdependencies, project alternatives, mandatory investments, and resource constraints), most portfolios are suboptimal and fall beneath the Efficient Frontier, as shown Figure 8. Analysts can use Portfolio Optimizer to identify and break these constraints, which will move the portfolio closer toward the Efficient Frontier and increase the total strategic value from the portfolio under the same budgetary constraints.

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Figure 8. A chart indicating the original portfolio has fallen short of the Efficient Frontier

Dynamically Assess Your Portfolio's Business Alignment

This portfolio optimizer business alignment framework methodology provides a rational approach for selecting project and program portfolios that best align with business strategy. Executives can dynamically assess the correlation between the business driver priorities and the investment from the selected project or program portfolio. This also means that organizations are able to react to fluctuations in the economy or changes in their industry.

This technique helps you quickly see if you are over or under investing in each of the prioritized business drivers. For example, Figure 9 shows the results of the Business Alignment Assessment generated before optimizing the portfolio. Executives quickly can see that this organization is under investing in the higher-priority drivers and over investing in the lower-priority drivers, suggesting the portfolio spending is not aligned with the organization's business strategy.

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Figure 9. Business Alignment Analysis (before optimization): Relative driver priority versus proposed investment

However, Figure 10 shows the results of the Business Alignment Assessment generated after optimizing the same portfolio. You can see there is a better correlation between the business driver priorities and the total investment in the selected portfolio, suggesting a stronger investment alignment with business strategy.

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Figure 10. Business Alignment Analysis (after optimization): Relative driver priority versus proposed investment

Finalize Portfolio Selection by Using the Decision Dashboard

A portfolio optimizer decision dashboard (see Figure 11) enables portfolio analysts to publish key metrics and recommended portfolios (such as optimization results) into an intuitive view, to provide executives with the data to support project and program funding decisions (such as Approve, Suspend, Cancel). In real time, executives can model project and program funding decisions and automatically see the impact on the portfolio's strategic value. The steering committee then can select the portfolio to be funded for the planning period.

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Figure 11. The Decision Dashboard.

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Figure 12. An example, end-to-end governance process.

There exist many ways beyond any suggested above to carry out the individual life cycle steps represented in Figures 1 and 12. For example, a committee could meet to select a portfolio in an actual conference room, via a video conference, or using a virtual meeting.

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