(Extended) Enterprise Portfolio Management / E(2)PM - News

NEWS

Enterprise Portfolio Management (EPM), the ultimate business driver for Enterprise Architecture

IFEAD's trend analysis shows that Enterprise Portfolio Management will be in the future the most important business driver for Enterprise Architecture. For that reason the Institute For Enterprise Architecture Developments will conduct their research studies in 2005 not only at the developments in EA but also in Enterprise Portfolio Management (EPM).

What is Enterprise Portfolio Management (EPM)?

Enterprise Portfolio Management is today in an evolutionary stage. An enterprise involves an amalgamation of interdependent resources (people, processes, facilities, and technologies) organized to obtain a strategic advantage in support of mission or business objectives. Thus, by its very nature, enterprise investment management is larger in scope and more complex than either project management or portfolio management. This is because, at the enterprise level, decision-makers must not only consider the investment options under their control but also take into account how the alternatives they have analyzed affect, and are affected by, other components of the enterprise.

IFEAD will conduct in 2005 a research project to address enterprise portfolio management and how it relates to the overall enterprise life cycle and the enterprise architecture of an organization. The emphasis is on developing and integrating value based methods, tools, and procedures. While today much of the focus in the public and private sector has been on business investments and IT cost reductions, the enterprise-level portfolio management process has applicability to other types of investment as well, such as human capital and non-IT assets, addressing all the elements of the Extended Enterprise Architecture Framework.

NEWS

Enterprise Architecture Helps Enable Portfolio Management
By: Michael Rosen
Cutter Consortium (02 Jun 2004)

I'm working with a company in the financial services industry to help maximize the impact of their enterprise architecture program. In order to communicate the value of architecture to the business sponsors, it's important to describe it in terms that they can relate to. Fortunately, I was able to refer them to the recent Business-IT Strategies Executive Report "Finding the IT Improvement Zone" by Cutter Consortium Senior Consultants Bob Benson, Tom Bugnitz, and Bill Walton to introduce the concepts of IT portfolio management and its importance in achieving the greatest overall impact of IT investments. The client was immediately able to understand the concept of balancing risk throughout the portfolio and managing the performance of assets.

A critical implication of managing IT as a portfolio is that the portfolio manager requires the ability to remove assets from the portfolio. The concept is simple enough, but achieving it is extremely difficult. This places new requirements on the IT architecture and infrastructure, and the business model as well. Until now, almost all IT organizations have been like "Hotel California," where applications can check in, but they can never leave.

Architecture to the rescue again. Virtually all enterprise architectures today incorporate the concepts of a service oriented architecture (SOA). The idea is that, over time, you can decompose monolithic business processes into smaller modules or units of business functionality (services). The IT infrastructure provides the ability to easily add new services and to recompose the smaller business services into new applications, products, or processes. This is the capability we're referring to when we describe an "agile enterprise." The participation of the business is critical in correctly defining the fundamental services and data needed to compose things of useful business value. This is the role of the business model that I described in my last Advisor, "Business Direction Is Critical to SOA Success" (21 April 2004).

It turns out that many of the characteristics of an SOA that enable new business processes (assets) to be plugged into the business-IT infrastructure are also the characteristics and features that can allow them to be unplugged. There are some modifications and extensions necessary to support additional areas of asset management, configuration control, versioning, interface control, and SLAs, but the fundamental mechanisms are the same. So, we can think of enterprise architecture as being an enabler of IT portfolio management.

With the ability to add, replace, or remove services, you can now perform several interesting portfolio management activities. For example, you may have some important business processes that have underperforming implementation (perhaps licensing or maintenance is too expensive). You can now consider alternatives for replacing the implementation with less-costly off-the-shelf or custom applications. Or, you may have some business processes that are also important, but which have become commodities over the years. Portfolio management and enterprise architecture allow you to consider more effective outsourcing of these functions, both reducing costs and allowing your internal IT to focus on more strategic activities. To facilitate these activities, the architecture can build in capabilities for SLA enforcement, outsourcing performance management, reporting, and so on.

There is one more important function that is necessary for effective portfolio management. That is the ability to measure the performance of IT assets. Most organizations have little if any ability to measure the real short- or long-term costs of IT applications, or the ability to measure application performance against goals. Without adequate measurements, how can you determine which assets in the portfolio are performing well and which are underperforming? The concepts of metrics setting, collection, analysis, and reporting should be integrated into all aspects of the enterprise architecture. The metrics need to measure performance against business goals, cost of implementation or integration, cost of maintenance and operations, performance against contracts and SLAs, and so on.

Portfolio management provides important and useful concepts for the management of IT assets. But unlike financial portfolios, it has been virtually impossible to remove any IT assets from the enterprise. A well-designed enterprise architecture can help in several ways. First, in providing the underlying infrastructure that allows assets to be added or removed from the enterprise IT portfolio. Secondly, by providing features to support management and outsourcing of assets. And finally, by providing mechanisms to measure the cost and performance of IT assets. As an enterprise partner with IT, the business needs to work with the architecture group to ensure that these capabilities are available. Conversely, enterprise architects should understand that providing these capabilities will greatly simplify the challenge of demonstrating the business value of a good architecture. Together, it's a winning combination.

-- Michael Rosen, Senior Consultant, Cutter Consortium

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This article was originally published by Cutter Consortium

www.cutter.com

Portfolio Management: Making the Journey

Alison Kassel | Co-Founder of Alluvion LLC
Dave Roen | Co-Founder of Alluvion LLC

There is a lot of attention currently on increasing the business value of Information Technology (IT), and better aligning IT investments with business strategies. Whether due to relentless budget pressures, the need to more effectively manage capital, increased visibility to spending, the legacy of IT investments that didn't live up to expectations, or greater accountability for results, there is a renewed emphasis on focusing and aligning IT investments and assets with the drivers of business value.

Creating and sustaining effective alignment between business strategies and IT investments can be challenging. Portfolio management is a technique that many companies believe can improve alignment. However, the percentage of companies that have actually implemented portfolio management is relatively low based on recent studies.

Like any business change program, an effective portfolio management program requires clear roles and processes, an enabling infrastructure, effective communication and training, accountability for results, and ultimately business buy-in. But implementing portfolio management involves striking a sometimes delicate balance between conflicting motivations and perspectives. On the one hand, portfolio management requires a common and rigorous process to drive well-informed and objective decision making. On the other hand, portfolio management is a tool, and like any tool, its effectiveness is based on how well it's used, and whether users embrace it. Striking the right balance is particularly challenging for organizations with a relatively decentralized structure and/or culture: the potential value of a comprehensive and consistent portfolio is significant, yet they are often skeptical about standard approaches and tools, particularly coming from "corporate" and when the end result is increased visibility and potential loss of control.

To their credit, many organizations have implemented processes and tools for managing and tracking project activities. The challenge for those looking to grow into portfolio management for executives is leveraging the existing infrastructure for decision making at the business strategy level. The analytics used to track project-level performance are often too detailed or functionally oriented, and the focus is often "Where are we spending?" instead of "Where should we be investing?"

Portfolio management success is based on a process and governance that bridges the diverse communities involved in building and managing the IT investment portfolio. Success is also rooted in the fundamentals of business change: building the case for change, creating the road-map, empowering the organization with processes and tools, and holding people accountable for results.

The following are some techniques used in building and implementing global portfolio management programs:

Common Business Language – ground the portfolio on common business process models, investment screens, and evaluation criteria that create a common language and perspective for evaluating and selecting IT investments.
Alignment to Value – define the key business capabilities that support the strategic objectives and/or drive business value, and build those into the process early; use executive scorecards with a few key measures of alignment to build understanding and buy-in.
Fact Based – basic facts about the current portfolio can quickly provide value by creating a common awareness of alignment opportunities or issues, providing the ability to make informed business decisions.
Skill Building – portfolio management calls for master-level skills in a variety of disciplines including strategic planning, financial analysis and project/program management. As master-level practitioners are often few and far between, build skills development and training into the program. Use a black belt/teaching assistant concept to help transfer knowledge and build skills.
Self Service – make the process and tools consistent and robust, creating common decision logic, but easy-to-use and relevant to different audiences; when the regional boards in the global organization we worked with began using the standard screens to self-select investments to take to the global board, we knew that the process was adding value.
Baby Steps – portfolio management is a complex discipline, and success is achieved through increasing levels of capability and maturity; tools such as Pacific Edge enable the foundational Project Management Office (PMO) disciplines that will allow achieving the end vision in a building block fashion.
The common theme is to plan and manage the implementation of portfolio management as a journey: never lose sight of the ultimate goal, but focus energy on the next steps while making progress in the short term.

Alignment between business strategies and investments is critical. An effective portfolio management process can be an invaluable tool for helping business leaders maximize the value their investments, and is relevant to business and IT organizations. And effective portfolio management can be achieved by managing the journey.

Alison Kassel is a co-founder of Alluvion LLC, which specializes in helping organizations align strategy with execution, optimize resources and improve shareholder value. Mrs. Kassel has over 20 years of experience in strategy, integrated planning, strategic alignment, scorecard and metric design, portfolio management and systems delivery. She can be reached at akassel@alluvion-us.com.

Dave Roen is a co-founder of Alluvion LLC, which specializes in helping organizations align strategy with execution, optimize resources and improve shareholder value. Mr. Roen has over 15 years of experience in strategy and planning, portfolio management and systems delivery. He can be reached at droen@alluvion-us.com.

Alluvion LLC specializes in bridging strategy and execution with practice areas in Portfolio Design, Scorecard and Metrics Design, Strategy and Planning, and Governance Process and Structure. Alison Kassel, Dave Roen and Scott Farrell, co-founders are all experienced practitioners in this field. For more information on Alluvion, call (708) 386-9053.