G00213756

Best Practices in Portfolio Management: The

Big Picture and How to Keep It
Published: 17 June 2011

Analyst(s): Robert A. Handler

Portfolio management is a proven best practice, enabling optimal allocation

of scarce assets/resources toward objectives, factoring in risk and
dependencies. Common mainstream portfolio management practice fails to
deliver on this value proposition. The root cause is failure to adopt a
pragmatic, human-centered, holistic approach that delivers obvious value to
key stakeholders.

Key Findings

Sufficient instances of success with portfolio management exist to validate its effectiveness as
a best practice.

Data suggests common portfolio management practices are failing to deliver optimal value, and
possibly should not even be considered portfolio management.

The root cause appears to be losing sight of the objectives of portfolio management, coupled
with too much focus on process and tools and too little on people and results delivery.

Recommendations

Develop an understanding of portfolio management as a process and discipline.

Develop an understanding of the organization-specific objectives of portfolio management,

noting organizational capabilities, constraints and maturity.

Institute pragmatic portfolio management that focuses on objective attainment and value
delivery paying careful attention to key stakeholders, ensuring they attain value, and also that
they understand and support the portfolio management concept.

Analysis
The Big Picture: IT Has One Portfolio
An organization has one logical IT portfolio, composed of all the IT investments that support the
organization's mission, strategies, goals and objectives. These IT investments are conceived, are
delivered, live a useful life and are eventually disposed of. This life cycle is shown in Figure 1, where
innovations are conceived of in the IT Discovery Phase. These innovations may occur as seemingly
harebrained applications of emerging technologies, many of which fade away, but some don't, often
providing enormous value.
More traditional IT investments mature into productivity as projects in the IT Project Phase. When
these projects are finished, they become productive assets, where they live a useful life in the IT
Asset Phase. Eventually, these IT assets must be retired, usually causing them to cycle back into
the IT Project Phase, because a project is usually required to replace or dispose of them. At the end
of the day, however, there is one logical portfolio composed of the entire IT budget all IT
resources being allocated to a set of objectives. They are all interdependent. The phases tend to
have stewards, most of whom report directly to the CIO. While conceptually, the CIO stewards the
entire portfolio, in practice, it is rare to see active portfolio management of the entire portfolio.

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Figure 1. IT Portfolio Life Cycle

Enterprise Strategic Intent
Critical Success
Enterprise
Architecture

Factors

Requirements

Stage 1.
Opportunity
Generation,
Capture &
Analysis

Enterprise Business Objectives

Key Performance

Business/
Competitive
Intelligence

Indicators

Business Unit Objectives/Requirements

Balanced

Stage 2.
Ideation

Gate 2

Gate 1

Scorecard

IT
Discovery
Phase

Gate 3
Stage 3.
Feasibility &
Assessment
Gate 4
Stage 4.
Idea
Selection

IT Plan (IT Policies, Principles, Road Map, etc.)

Reflects Regular
Status Reviews

Gate 6

Stage 3.
Life Cycle
Management
Gate 3
Stage 2.
Postlaunch
Review
Gate 2

Gate 4

Asset Transformation
Discovery Proposals
Asset Transformation
Project Proposals

IT Asset
Phase

New Modified Assets

Gate 5

Approved & Mature Concepts

Gate 1

Gate 1
Stage 1.
Successful
Launch

Stage 5.
Concept
Maturation

Gate 6

Stage 1.
Scoping/
Preliminary
Analysis

IT Project
Phase

Stage 5.
Launch &
Implement
Gate 5

Gate 2
Stage 2.
Build
Business
Case
Gate 3
Stage 3.
Development

Stage 4.
Test &
Validation

Gate 4

Source: "IT Portfolio Management Step-by-Step: Unlocking the Business Value of Technology," by Bryan Maizlish and Robert Handler, Wiley, 2005

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For manageability, it is common to divide the IT portfolio into subportfolios to support differing
needs of business units (such as different business units that support different markets or different
geographies, necessitating autonomy, individuality or degrees of freedom). It is also common to
break down components of the IT portfolio based on the phases of the life cycle. This is akin to
separation of concerns designing separate areas to work on such that any work in that area
would minimally impact other related areas. Thus, it is normal and acceptable for an organization to
focus solely on the project portfolio for a while, then focus on the assets (such as the application
portfolio). This allows portfolio management work to get done in the face of limited resources, an
overabundance of information and low thresholds for change pain.
There are also liquidity issues that can be tackled by having portfolio partitions. For example,
projects are relatively easy to stop, whereas assets (such as an archaic ERP system) are not. In
2010, 6% of projects were canceled prior to delivery, but we have received no confirmed reports of
1

the shutting down of an archaic ERP system without a corresponding project to replace it.

In addition, the underlying processes that generate data to do portfolio management are quite
different. The Discovery Phase is less constrained and lends itself to creative processes (such as
ideation). The Project Phase has greater control, but accounts for normal project risk and change.
The Asset Phase is operational, replete with standard processes and often in a continuous
improvement cycle.
There are also accounting practices and principles that motivate separation. Projects in the Project
Phase tend to be capitalized to spread the costs over a period of years. Assets in the Asset Phase
tend to be amortized or depreciated, deducting asset value over the useful life of the asset. Often,
items in the Discovery Phase don't show up on the accounting radar screen until they've either
generated returns or failed.
At the end of the day, however, there is one logical portfolio. All the IT investments and all the IT
resources are allocated to a set of often competing objectives. As an individual allocates scarce
resources (that is, their income) toward their objectives (such as purchasing a house, going on a
vacation or retiring) using a variety of investments (for example, penny stocks, large-cap stocks and
fixed-income securities), an organization must allocate its scarce IT resources toward a set of
business objectives using various investment classes (such as projects, assets and innovations)
through the Discovery Phase.

The Big Problem: Portfolio Process Without Perspective Disconnects IT From the
Business
The big problem occurs when organizations fail to recognize that it's one logical portfolio and the
interdependencies are lost. During the 2008-2009 correction, the problem surfaced as reactive
project portfolios, where capital grow-the-business spending was indiscriminately cut, while
concretized grow-the-business costs remained seemingly unscathed, and opportunities to
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transform were seemingly forgotten. In true IT portfolio management, projects become assets, and
assets become projects. Failure to recognize this dynamic contributes to a disconnect between
business vision and IT delivery, as well as a bloated asset portfolio that consumes the majority of
the IT budget to maintain the status quo. Business leaders declare their organizations are on paths

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to growth or transformation, yet 67% of the IT budget, on average, is allocated toward maintaining
the status quo (see "IT Key Metrics Data 2011: Key Industry Measures: Cross Industry Analysis:
Current Year"). For the period of 2006 through 2010, IT spending as a percent of revenue fluctuated
between 4% and 3.4%; however, the percentage of that spending allocated to run, grow and
transform (see "A Simple Framework to Translate IT Benefits Into Business Value Impact" for an
explanation of these categories) remained virtually unchanged (see "IT Key Metrics Data 2011: Key
Industry Measures: Cross Industry Analysis: Multiyear").
2008 through 2009 marked the biggest economic crisis and contraction ever for most people alive
today; however, the percentage of the IT budget allocated to run, grow and transform did not
change noticeably during this period. Even allowing for a time lag between changes to the business
and a corresponding response from IT, data suggests that business changed, but IT did not,
3

beyond an obligatory reaction to cut some project costs.

So what's the big deal? Opportunity costs. The status quo was largely maintained in IT, while the
business that IT is supposed to represent contracted for most. The resources being allocated to
growth could have been redeployed to reduce costs in the Grow Phase or could have been
allocated to Transform. The resources could have been conserved as well. Analyzing the aggregate
data, with every plausible explanation, suggests that IT lacked the agility to change with the
business. The big problem is the lost opportunity to serve the business the way it needs to be
served.

The Big Solution: Focus on the Big Picture and the People, and Keep It Simple
The big solution isn't actually big at all. Those who've attained exemplar results from IT portfolio
management have relied on a handful of best practices to do so. Cisco Systems, Xcel Energy, and a
handful of leading IT portfolio management practitioners had the ability to adjust to business needs.
4

They all embraced a consistent set of simple best practices. These best practices were:

Maintain a big-picture perspective

Keep it simple: process and analytics

Focus on people

Maintaining the Big Picture

Those who succeed with IT portfolio management tend to maintain a big-picture perspective,
ensuring their portfolio management effort supports the objectives of the business even as they
change. Leaders also acknowledge the connections between the various phases of the IT portfolio
life cycle (see Figure 1) and the relationship between these phases and the categories of run, grow
and transform. While they may not mature their Project, Asset, and Discovery portfolios consistently
in a linear fashion, they do acknowledge the full life cycle and ensure they have some visibility
across the phases even if rudimentary. For example, one leader focusing on project portfolio
management collected a list of assets to ensure that requested or active projects were not

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duplicating assets. This extra effort proved fruitful because they were, in fact, creating and
proposing to create millions of dollars in duplicate assets.

Keep It Simple
A host of "advanced" techniques are advocated by myriad prognosticators; however, in practice,
leaders tend to use simple processes and simple analytics. The processes are consistent with their
organizations' culture, maturity and need. IT portfolio management is largely a planning discipline,
more in the realm of management accounting than financial accounting.

Focus on People
IT portfolio management leaders focus on key stakeholders, ensuring that both the value
proposition and the value delivered from portfolio management resonate with the values of key
stakeholders and ensuring their continued involvement and support. They take time to do
stakeholder analysis, identify stakeholders who will declare portfolio management a success or
failure, and take action to ensure that success is declared. These stakeholders generally include,
but are not limited to:

Senior management

Business unit leaders

Participants in IT steering committees

The communication with key stakeholders is bidirectional. These key stakeholders are usually the
best source for information regarding environmental changes that might necessitate a significant
rebalancing of the IT portfolio; however, this information must be elicited. IT portfolio management
leaders also develop and maintain support for portfolio management through active communication,
relationship management and expectation management. Communication is a thoughtful and
ongoing component of a successful portfolio management function.

Action Items
Maintain the Big-Picture Perspective
Develop an understanding of the phases of the IT portfolio management life cycle, and foster this
understanding throughout the organization. Even if focusing solely on just the project portfolio,
acknowledge the connection to other portfolios (such as applications). Conversely, if the focus is on
application portfolio management, acknowledge the existence of the project portfolio and the
discovery portfolio. Forge relationships with key stakeholders responsible for all phases of the IT
portfolio life cycle, including enterprise architecture, emerging technologies or any other group
responsible for experimentation that is the hallmark of the discovery phase. Also, develop alliances
with those responsible for the asset portfolio, including the owners of maintenance, as well as
operations to ensure the big-picture perspective is pervasive.

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Also, ensure that subportfolios are appropriate and can be reconciled. In highly federated
organizations, it is common to have subportfolios to enable autonomy and rapid change. The best
way to ensure the design of these portfolios is optimized is to reconcile them back to a single
logical IT portfolio.

Keep It Simple
Albert Einstein famously said, "Everything should be made as simple as possible, but not simpler."
Use assessments such as Gartner's "ITScore for Program and Portfolio Management" to identify
capabilities and constraints, as well as to identify targets for processes and analytics. In general,
strive to master the processes and analytics at the current level of maturity or one level up no
more.

Focus on People
Use stakeholder analysis to identify the key stakeholders those who can make or break IT
portfolio management. Ensure that the value promised and delivered from IT portfolio management
is consistent with their values and is attainable. Foster support for portfolio management by
delivering value in exchange for support. Develop processes and analytics that meet the needs of
the business leaders. Many decision style models suggest that high-level conceptual information
resonates more with senior leaders than fine-grained detail. Playing to this dynamic also lightens the
workload for portfolio management professionals; they only have to collect and structure a minimal
amount of data to support decisions.

Recommended Reading
Some documents may not be available as part of your current Gartner subscription.
"IT Portfolio Management: Unlocking the Business Value of Technology," by Bryan Maizlish and
Robert Handler, Wiley, 2005
"Planning for IT Portfolio Management"
"ITScore for Program and Portfolio Management"
"A Simple Framework to Translate IT Benefits Into Business Value Impact"
Evidence
1

"IT Key Metrics Data 2011: Key Applications Measures: Project Measures: Current Year"

IT Key Metrics research "IT Key Metrics Data 2011: Key Industry Measures: Cross Industry
Analysis: Current Year," "IT Key Metrics Data 2011: Key Industry Measures: Cross Industry
Analysis: Multiyear" and "IT Key Metrics Data 2011: Key Applications Measures: Project Measures:
Multiyear" shows that, between 2008 and 2009, organizations did, in fact, decrease their IT

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spending primarily on projects in the "grow the business" category in response to a major economic
downturn, and increased their project spending on grow-the-business projects beyond 2008 levels
in 2010.
A pattern of decreasing projects geared toward growth during a contraction would be logical, but
other data suggests this was simply reactionary cost reduction not portfolio management.
Project investments categorized as "transform the business" followed no explainable pattern,
remaining constant between 2008 and 2009 and then dropping in 2010. Furthermore, capital
spending from 2008 to 2009 remained constant, only to decline in 2010, yet the percentages of
overall IT spending on run, grow and transform remained virtually constant from 2008 to 2010.
Furthermore, IT spending as a percent of operating expense dropped from 5.9% to 4.4% from 2008
to 2009 and continued to drop thereafter, suggesting significant slack existed. Further evidence
suggesting a lack of portfolio focus abounds. For example, while growth-oriented projects declined
during the period between 2008 and 2009, and run-oriented projects did not, the percentage of
reduction in application development staff and application support staff was almost the same. One
would expect a substantially greater reduction in application development staff over application
support.
3

"IT Key Metrics Data 2011: Key Industry Measures: Cross Industry Analysis: Current Year," "IT Key
Metrics Data 2011: Key Industry Measures: Cross Industry Analysis: Multiyear" and "IT Key Metrics
Data 2011: Key Applications Measures: Project Measures: Multiyear"
4

"IT Portfolio Management: Unlocking the Business Value of Technology," by Bryan Maizlish and
Robert Handler, Wiley, 2005

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