Many organizations use portfolio management to improve IT project valuation and selection. Some organizations, however, are realizing opportunities to use it as an active management tool that involves the business with IT and to level-set the perception of business value from IT. When budgeting is tied to project valuation and selection, it can actively guide the measurement of IT value to maximize performance for the organization.
Driving portfolio decisions through the IT budgeting process is the first step in creating an active management framework. Alignment of strategic business goals to IT is only one part of the success equation. To complete the picture, business-driven value metrics must be linked to the investment selection process and drive the IT budgeting process . It’s a careful balancing act that requires repeated scenario simulation to ensure that the correct alignment is achieved and that adequate budget is allocated to support the achievement of strategic goals.
Communicating portfolio decisions increases agility throughout the organization. The results of investment selection and resulting budgets must be shared with the business to allow them to monitor and track progress, as well as validate that expected benefits remain true as initiatives are executed. Using collaborative top-down budgeting processes allows business managers and IT managers to reach consensus on IT investment priorities. Both need to continue their collaboration through the delivery of IT projects with a focus on the key value metrics that are defined for the investment. As strategy shifts during execution, adjustments to the basic assumptions can be factored into the portfolio and the portfolio adjusted based on this new information.
Measure and realign. Once the budget is set, both the business manager and the IT manager need to continually measure, evaluate and realign future investment in the selected projects. By agreeing on and recording key value metrics through the execution of the project, the business manager and IT manager can ensure that the expected benefits are realized as strategy shifts during execution. Original assumptions must be re-evaluated and the portfolio adjusted based on this new information.
Allocate budgets based on investment schedule instead of fiscal periods. The fact is, few investments start and finish in sync with budgeting cycles. Often original cost justifications are lost when funding requirements slip beyond the original budgets in which they were proposed. Early visibility of time-phased budget spend will help to ensure that no one is surprised as the projects progress and business managers can adjust value expectations from the project delivery.
Typical benefits of companies who have implemented this process are:
- Consistency between the bi-annual IT progress plan, the annually allocated IT budgets and the ongoing actions.
- Having a comprehensive and shared view of all ongoing or planned projects and initiatives and associated key indicators. This simple step of data collection and consolidation has enabled many senior executives to determine the work in process. It also indicates the lack of updated, relevant performance measurements, notably for the evaluation of anticipated contribution.
- The ability to regularly measure the alignment of ongoing and planned projects with corporate strategy; thereby eliminating high-risk, non-aligned projects with low ROI before they affect corporate profitability.
- The encouragement of arbitration based on criteria such as balance, risk, contribution to specific business areas or the profitability of invested capital.
- Optimized use of funds and human resources, focused on shared priorities.
- Guaranteed centralized access to essential information for the decision-making committees and others involved; thereby simplifying and speeding up decision cycles.
Focusing on investments that generate maximum value, from selection to execution, while addressing compliance requirements and capacity planning are some of the key benefits of Portfolio Management. Call Ten Six today to learn more about our Portfolio Management services!