Pmi Tvo 030508

May 8, 2003, PMI

Integrated Management Associates

Number 1WWW.IMA-PM.COM

A Process for Managing an IT Project Portfolio

usingTotal Value of Ownership

Presented By Craig Hockenbrough, PMPV.P. Technology Services

Prepared By William Corbett

Craig Hockenbrough

May 8, 2003, PMI



Founded in 1992, Integrated Management Associates (IMA) is a full service Global Management Consulting and Training company. It provides to its clients best practice knowledge and expertise through:• Management Consulting• Information Technology Infrastructure Consulting• IT Assessments – Total Value of Ownership• Project Management Implementation Consulting• Project Management Seminars - PMI courses

May 8, 2003, PMI



Agenda

• Issues Facing CxO’s

• Resolution - Project Portfolio Management

• Reasons to adopt Portfolio Management

• Alternative Evaluation Methods

• TVO – Total Value of Ownership

• Q & A

May 8, 2003, PMI



CxO Issues• Drive top quality

• Start new projects

• Standardize

• Be strategic

• Reduce Cost

• Stop projects that aren’t working

• Shrink infrastructure investments

• Minimize development

May 8, 2003, PMI



Traditional Evolutionary Stages of IT to Business

• IT not considered strategic supporting Business growth

• Cost Management

• Operational Efficiency

• Benchmarking

• Downsizing

• Support Growth

• Enhance Profitability

• Aggressive IT Investments

• Balanced Scorecard Projects

• Cost & Performance Standards

• Free market Competitor

• Comparison to External World:

• IT Managed as a Business

• Manages Portfolio

Service –Order Taker

Business Enabler

Business within a Business

Full Business Integration

May 8, 2003, PMI



Tech = 25%Bus = 5%

The Compounding of Technology vs Business use of Technology Costs

May 8, 2003, PMI



Reasons to adopt Portfolio Management• Businesses have invested too much on technology and seen too

little return. IT investments are falling short of corporate goals.

• IT organizations can select best projects for the business and not just keep up with demand for technology innovations.

• IT focused too much on home run technology - the “Killer App”.

• Standish Group Study

9% technology investments completed on time, on budget & scope

29% completely failed (wasting $80- $145 billion)

May 8, 2003, PMI



Key Challenges of IT

• 84% of companies either do not do business cases for their IT projects at all or just do them on a select few key projects

• 83% of companies are unable to adjust and align their budgets with business needs more than once or twice a year

• 67% of IT organizations are not “market ready” — benchmarking is done less frequently than once a year

• 89% of companies are flying blind, with virtually no metrics in place except for finance (akin to flying a plane by monitoring the fuel burn rate)

• 57% of companies perceive they are balancing the pressures of cost cutting and IT effectiveness — but perception is not necessarily reality

From a META Group survey 1/2002

Assessing and communicating the value of IT investments to the business units.

May 8, 2003, PMI



The portfolio management process• Continuous management

“Static" assets (existing applications hardware, etc.) “Active" assets (projects, etc).

• Continuous analysis New opportunities Performance of existing assets Interaction of devoting resources to new

opportunities.

May 8, 2003, PMI



The IT portfolio consists of:

• Application systems, products, and suites - either COTS or in house

• Processing hardware infrastructure and operating systems

• Network equipment and software

• Services (including consultative)

• Distinct technology products

• Human resources - internal and external contract

• Data/information

May 8, 2003, PMI



• Level of risk versus expected benefits or value.

• Magnitude of the investment being made• Current fair value. What the investment is

worth at any given point in time• Expected life cycle. When the investment is

expected to pay off, and what the various stages of maturity are for a given asset

Portfolio Assessments Buy, Sell, or Hold?

May 8, 2003, PMI



Portfolio Management Goals

1. Balance risk and reward. • Consistent decision-making process• Systematically weighs risk and reward• Maintains appropriate balance of risk & return• Aligns IT portfolio with risk/reward profile of business

2. Improve communication with business leaders and within the IT organization.• Articulate IT decisions in business terms• Improve integration of purpose

May 8, 2003, PMI



Portfolio components include projects that :

• Expand the portfolio

• Renew elements of the portfolio

• Correct problems within the portfolio Other, less tangible portfolio holdings include:

• Knowledge and experience embedded in people, processes, systems, and databases

• Intellectual and innovation capital

• Customer/user assets

• Relationship assets

4

May 8, 2003, PMI



Business Driver

Project Office

Project Management

Project Attributes for Portfolio ManagementOn-time behavior

On-cost behavior

On-scope behavior

On-value behavior (includes benefits trajectory along with expected value)

Risk level

Behaviors trend

Intra-project portfolio impact

Portfolio impact

Revaluation triggers

Thresholds of tolerance for deviation from plans

Management tempo and funding model (from traditional to venture)

May 8, 2003, PMI



Measuring IT ValueBusinesses are under a lot of pressure to justify the IT budget and

put a measure on value that may not be obvious.

One way to make the value of IT more obvious is to adopt a logical, repeatable framework—a valuation methodology.

Adoption of a valuation methodology helps:

• Establish a clear connection between IT and business strategy,

• Link technology initiatives to shareholder value,

• Facilitate negotiations with the CFO,

• Ultimately optimize the budget for IT and spend it where it does the most good.

May 8, 2003, PMI



Valuation MethodologiesTraditional

• Economic Value Added (EVA)

• Total Cost of Ownership (TCO)

• Total Economic Impact (TEI)

• Rapid Economic Justification (REJ)

Qualitative• Balanced Scorecard

• Information Economics (IE)

• Portfolio Management

• IT Scorecard

Probabilistic• Real Options

Valuation (ROV)

• Applied Information Economics (AIE)

Total Value of Ownership (TVO)

May 8, 2003, PMI



Total Value of Ownership (TVO)

Includes BothTechnology & Business

Metrics

Value = Benefits – Risk

What’s the value of IT?

TVO – An exclusive service of Integrated Management Associates

May 8, 2003, PMI



TVO Provides1. Metrics for assessing the Technology delivery system(s)

2. User productivity and business revenue impacts and/or benefits

3. Measurement of realistic IT delivery service levels supported by a balanced TVO* (IT & Business)

4. Payback period and ROI for the proposed Technology delivery system(s)

5. Indicators for the justification for management of software and/or support personnel based on productivity improvements seen in the business units

6. A valuable benchmark from which to measure future TVO**TVO – An exclusive service of Integrated Management Associates

May 8, 2003, PMI



CompetitiveStrategy

BusinessGrowth

CostManagement

ROI Profit

CompetitiveAdvantage

Why TVO?

Well…Where Do

You Want To Go?

TVOTVO


May 8, 2003, PMI



Business Community Productivity

Productivity Potential

SLA = 100%

Productivity Impact

ProductivityImprovement

Access To Information

$Technology Application

SLA < 100 %

Dri

ve C

osts

up

Increase Performance

May 8, 2003, PMI



Business Cost/Benefit Elements

CEO/PRESIDENT

MFG CustomerSupport

DIST MKT FIN ITDelivery

CIO

$$$$IT CostsUser Productivity

Potential New Business

$COO CFO

Lost

Business

Impact

Business Costs ?

May 8, 2003, PMI



Component Focus ExampleHardware Technology CPU, Storage, Server, NetworkSoftware Technology OS, DB, Ntwk., Shrink-WrapSupport Technology Ops., Tech Supt., Consulting

Availability Business User, Outage ImpactPerformance Business User, ProductivityRecovery Business User, Restoration

Levels of TVO


May 8, 2003, PMI



BaselineBuilding an IT Portfolio Approach Starts With the

Baseline ROI based on TVO

Current Systems & Proposed Projects

• Recovery

• Performance

• Availability

• Hardware

• Software

• Personnel


May 8, 2003, PMI



ROI based on TVO of Proposed SolutionsLooking solely at IT

EBDS URL=http://www.cxotoolkit.com/

Cost of Delay=$305,460Payback = >32 mo.

May 8, 2003, PMI



ROI based on TVO of Proposed SolutionsLooking at IT & Business

EBDS URL=http://www.cxotoolkit.com/

Cost of Delay=$990,218Payback = <10 mo.

May 8, 2003, PMI



Portfolio Component Cost Comparison (ROI)

ERP CRMData Mart

HRIS Sales

Hardw are

Softw are

PersonnelRecovery

PerformanceAvailability

0

200000

400000

600000

800000

1000000

1200000

1400000

Projects

Cost

Portfolio Project Proposed

ROI

0 0.5 1 1.5 2 2.5 3 3.5 4

ERP

CRM

Data Mart

HRIS

Sales

Project

Years


May 8, 2003, PMI



TVO Process Implementation

Start•Decision Points•What-If Analysis

Current StateAssessment(Baseline)

Facilitated Capture & Analysisof Business & IT Knowledge

On-goingSupport

Proposed Initiatives

?


May 8, 2003, PMI



TVO TVO AnalysisAnalysis

CxOCxODataData

CollectCollectQuestionnaireQuestionnaire

andandSpreadsheetSpreadsheet

““What If ?“What If ?“QuestionsQuestions

Immediate FeedbackImmediate Feedback

Cost & Cost & Investment Investment

Summaries &Summaries &ComparisonsComparisons

ReportsReportsBusiness Case,Business Case,Budget RequestBudget Request

Technology Investment Technology Investment Decision TeamDecision Team

CEOCEOCOOCOOCFOCFO

CIO CIO

Data Input and OutputCurrent System

IT Personnel

Alternative Architectures

SLA/Business Requirements

Business Environment

Application Profile

May 8, 2003, PMI



Craig Hockenbrough, PMP

I Can be Reached at;

Main: (401) 743-7702

E-mail: [email protected]


Documents

Pmi Tvo 030508