A Portfolio Approach to IT Projects

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A Portfolio Approach to IT Projects

• MIS 6413 Management Information Systems
• Fall 2005 Dr. Richard S. Segall
• Chapter 10 Lecture Notes

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Introduction

• Today we will examine
• IT portfolio management

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INTRODUCTION
1

• Source of Implementation Risk
• Project Categories and Degrees of Risk
• Project Management A contingency approach
• Concluding Thoughts

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Objectives

• At the conclusion of this lesson, the student
  should be able to
• Explain what IT Portfolio Management is
• Describe three steps used to implement IT
  Portfolio Management
• Discuss risks associated with IT projects and
  risk mitigation

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What is Portfolio Management?

• A methodology for ensuring every product in an IT
  organizations portfolio is analyzed for risk and
  return
• If the risk is too great or the reward too
  little, the project doesnt get funded.
  Doug Hubbard Hubbard Decision
  Research Glen Ellyn

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Sources of Implementation Risk p.580-581

• Project Size
• Experience with Technology
• Project Structure

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Three Steps

• Step 1 List every IT project in the enterprise,
  including resource requirements stated
  objectives
• Step 2 Evaluate each project for risk return
• Step 3 Ongoing risk assessment
• Continually reassess risks as project progresses

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Risk Matrix
High
Project Risk
Low
High
Investment Return
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Project Categories and Degrees Of Risk p.581-585

• Assessing Risk for Individual Projects
• Large Project vs. Small Project
• Low Structure vs. High Structure
• Low Company-relative technology
• High Company-relative technology
• Risk Assessment Questionnaire Figure 10.3 on page
  583.

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Step 1 List Projects

• Determine what projects are in progress
• Create a database containing all pertinent data
  on each project
• Determine what tools and resources are in use on
  these projects
• Hopefully will reveal duplication of effort and
  poor use of resources

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Tools Resources

• Complete knowledge of resources available
  requires strong asset management program
• Knowing what IT resources are already on hand
  should facilitate intelligent reuse and eliminate
  purchase of items already held
• Allows better grasp of technology resources the
  company has already invested in for planning and
  resource management

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Tools Resources

• Knowledge of what tools resources are in use in
  each project should eliminate redundancy
• One bank, using IT portfolio management,
  discovered four divisions doing four CRM
  projects, one with a different application then
  the other three, and huge duplication of effort
• Resource capacity should also be considered
• One project may require only half the capacity of
  a server purchased for the project, freeing the
  rest for use by another project

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Dont Stop at Step One!

• Many enterprises are so pleased with the results
  of the first step they never take IT Portfolio
  Management any further
• Evaluation of projects for risk and return will
  save far more than merely coordinating asset use
  and eliminating duplicate efforts

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Risk

• The chance of injury, damage, or loss Webster's
  New World Dictionary of the American Language
  (1979, Simon Schuster, New York, NY)
• The National Academy of Sciences defines risk as
  a combination of the probability of an
  eventusually an adverse eventand the nature and
  severity of the event.

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Inherent Risk Factors p.579-580

• Project size
• The bigger they are, the harder they fall!
• Experience with technology
• Project structure
• High- or low-structure project

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Components of Risk p.581-586

• (1.) Portfolio Organizational risk p.585
• e.g. Risk that organization will not manage
  change necessary to maximize projects value
• (2.) Technological risk Fig 10.3 page 584
• e.g. Tech tools developed or purchased for the
  project will fail in some fashion
• (3.) Project management risk p.585
• e.g. Risk that project manager(s) will not have
  sufficient knowledge or experience

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Top Three Risks

• As identified by IT managers
• Lack of top management commitment to the program
• Failure to gain user commitment
• Misunderstanding the requirements

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Risk Assessment

• A scientific process of evaluating the potential
  adverse effects caused by risks
• Characterized by uncertainty
• Uncertainty inherent in risk assessment because
  risk assessors cannot precisely describe most
  risks due to this, they should state the range
  of probabilities for harm for the risks that they
  have identified

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Step 2 Risk Assessment

• Using questionnaires and matrices, evaluate risk
  of project
• The higher the risk assessment score, the more
  urgent that top management has a say in decision
  to implement the project
• Three questions

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Three Questions on Risk p.585

• 1. Are the benefits great enough to offset the
  risk?
• 2. Can affected parts of the organization survive
  if the project fails?
• 3. Have planners considered appropriate
  alternatives?

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Risk Factors

• The project sponsor and/or the project manager
  does not recognize that every project is a risk
  exercise.
• This project is very different from the last one.
  
• There is a feeling of uneasiness.
• When the project is in its earliest phase,
  project risk and uncertainty are highest.
• The project scope, objectives and deliverables
  are not clearly defined or understood.

Norton, Joe Mitigating Risk in Technology
Investments through IT Portfolio Management,
www.teradata.com/executive/b_tech_portfolio_series
.asp
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Risk Factors

• A large number of alternatives are perceived as
  possible.
• Some or all technical data is lacking.
• The technical process and design are not mature.
• Standards for performance are unrealistic or are
  absent.
• Costs, schedules and performance are not
  expressed in ranges.

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Risk Factors

• The future timing of activities and events are
  vague.
• Design lacks production engineering input.
• Prototype of a key element is missing.
• There is a higher than usual RD component.
• Some or all environmental permits are lacking.
• Other similar projects have been delayed or
  cancelled.

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Risk Factors

• Wide variations in bids are received.
• Some key subsystems and/or materials are sole
  source.
• No appropriate contingency plans have been
  developed.
• The project team relies entirely on the
  contingency allowance.
• Someone starts hedging their bets!

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Quadrant Risk Mapping
High
Probability of Risk Event
Low
High
Severity of Consequences
Jeffery, Mark Mitigating Risk in Technology
Investments through IT Portfolio Management,
www.teradata.com/executive/b_tech_portfolio_series
.asp
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Assignment of Risk Value

• Identify which quadrant each risk belongs in
• Give greatest attention to resolution of risks in
  upper right quadrant
• If risks cannot be mitigated, abandon project

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Return

• Should be predicated on long term benefit
• Can get bogged down in ROI
• Especially short-term
• Big IT projects are infrastructure and unlikely
  to have impact on quarterly profit
• Benefits not all ROI, but some experts believe
  all returns can be measured

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Portfolio Risk p.585-586

• What percentage of projects in the portfolio are
  high risk?
• What proportion of high risk projects are
  acceptable to the organization?
• Percentage will vary widely based on type of
  organization
• High percentages may be acceptable in IT firms
  but percentages should be low for, as an example,
  banks

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Step 3 Ongoing Risk Assessment

• Reassess risk throughout duration of project
• Examine not only risk of project failure but
  impact on overall project portfolio as well
• Key concern is value to organization
• On time, under budget does little good if the
  intended value to the business is not delivered

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Levels of IT Portfolio Management

• IT asset project inventory
• Identify needs in the organization
• Align IT Portfolio with organizational strategy
• Match strategy with concrete IT objectives
• Automate the ITPM process

Jeffery, Mark Unlocking the Value from Your IT
Investments with Technology Portfolio Management,
www.teradata.com/executive/b_tech_portfolio_series
.asp
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Project Management A Contingency Approach

• Management Tools
• External Integration Tools
• Internal Integration Devices
• Formal Planning Tools (Project manager, COCOMO,
  CPM)
• Formal Results Control Mechanisms

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Project Management A Contingency Approach (Cont.)

• Influences on Tool selection
• High Structure/Low technology projects
• High Structure/High Technology projects
• Low Structure/Low Technology projects
• Low Structure/High Technology projects
• Relative Contribution of management Tools
• Emergence of Adaptive Project Management Methods

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Systems Development

• SDLC System Development Life Cycle
• Rapid Systems Development
• Prototyping
• Adaptive Methodologies
• Adaptive Methods and Change Management
• Software Configuration Management

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Business Strategy ? IT Strategy

• Properly applied, IT portfolio management is a
  key component in aligning IT strategy with
  business strategy
• Alignment of IT strategy will allow ongoing
  reassessment of IT portfolio, allowing dumping of
  non-performing on unused assets

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Bottom Line IT is a Business

• Process consistency and agility in Project
  management
• A Minimalist Approach to process Formalization
• Flow
• Completeness
• Visibility

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The End

• Questions?
• Discussion!

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A Portfolio Approach to IT Projects

• MIS 6413 Management Information Systems
• Fall 2005 Dr. Richard S. Segall
• Chapter 10 Lecture Notes