R. Ching, Ph.D. MIS Area California State University, Sacramento 1 Week 11 Monday, April 10 Portfolio Approach to Managing IT ProjectsPortfolio Approach

R. Ching, Ph.D. • MIS Area • California State University, Sacramento 1

Week 11Week 11Monday, April 10Monday, April 10

• Portfolio Approach to Managing IT ProjectsPortfolio Approach to Managing IT Projects


ProfolioProfolio

• Selecting and prioritizing projectsSelecting and prioritizing projects– Which projects have the greatest Which projects have the greatest

impact?impact?• Organization’s strategyOrganization’s strategy• Internal processesInternal processes

– Which projects have the greatest risk?Which projects have the greatest risk?– Which projects have the greatest Which projects have the greatest

payoff?payoff?• In terms of dollars, tangible and In terms of dollars, tangible and

intangible benefitsintangible benefits– Which projects are required?Which projects are required?– What is the What is the valuevalue of information? of information?


Corporate InitiativesCorporate InitiativesCorporate InitiativesCorporate Initiatives

• Corporate infrastructureCorporate infrastructure• IT infrastructureIT infrastructure• Corporate infrastructureCorporate infrastructure• IT infrastructureIT infrastructure

PortfolioPortfolio

Organization Strategic PlanOrganization Strategic PlanOrganization Strategic PlanOrganization Strategic Plan

IT Strategic PlanIT Strategic PlanIT Strategic PlanIT Strategic Plan

PortfolioPortfolio Project Project ImplementationImplementation

• Long-term projectsLong-term projects• ““Low-hanging fruit”Low-hanging fruit”


Project RiskProject Risk

• Serious deficiencies in IT managementSerious deficiencies in IT management– Failure to assess the implementation risk of a Failure to assess the implementation risk of a

project at the time it is fundedproject at the time it is funded– Failure to consider the aggregate Failure to consider the aggregate

implementation risk of the portfolio of projectsimplementation risk of the portfolio of projects– Failure to recognize that different projects Failure to recognize that different projects

require different managerial approachesrequire different managerial approaches

RiskRisk

PayoffPayoff

The greater the risk, the greater the payoff (benefit)The greater the risk, the greater the payoff (benefit)

PotentialPotential


Project Dimension and RiskProject Dimension and Risk

• Project size – The larger the project (budget, Project size – The larger the project (budget, staffing levels, duration, number of departments staffing levels, duration, number of departments affected), the larger the riskaffected), the larger the risk

• Experience with technology – Unfamiliarity with Experience with technology – Unfamiliarity with the technology (hardware, software, etc.) the technology (hardware, software, etc.) increases riskincreases risk

• Requirements volatility – Stable requirements Requirements volatility – Stable requirements reduce the risk; “evolving” projects pose greater reduce the risk; “evolving” projects pose greater risksrisks


Effect of Increasing Risk ComponentsEffect of Increasing Risk Components

Project Project RiskRisk

Number of Risk FactorsNumber of Risk Factors

Moderate RiskModerate Risk

High RiskHigh Risk

Very High RiskVery High Risk

11 22 33

Project sizeProject sizeExperience with technologyExperience with technologyRequirements volatilityRequirements volatility

RiskRisk


Implementation Risk CategoriesImplementation Risk CategoriesLess Project SizeLess Project Size

Low Low TechnologyTechnology

High High TechnologyTechnology

High Requirements High Requirements VolatilityVolatility

Low Requirements Low Requirements VolatilityVolatility

Spreadsheet support for Spreadsheet support for budgeting (budgeting (low tech low tech application, application, requirements unknownrequirements unknown))

Online graphic support Online graphic support for advertising copy for advertising copy ((high tech application, high tech application, requirements unknownrequirements unknown))

Year 2000 compliance Year 2000 compliance ((low tech application, low tech application, requirements knownrequirements known))

AI-driven bond AI-driven bond trading (trading (high tech high tech application, application, requirements knownrequirements known))


Implementation Risk CategoriesImplementation Risk Categories

LowLow

HighHigh

HighHigh LowLow

Tec

hnol

ogy

Tec

hnol

ogy

Requirements VolatilityRequirements Volatility

SizeSize

SmallSmall

LargeLarge

Year 2000 compliance Year 2000 compliance ((low tech application, low tech application, requirements knownrequirements known))

AI-driven bond AI-driven bond trading (trading (high tech high tech application, application, requirements knownrequirements known))

Spreadsheet support for Spreadsheet support for budgeting (budgeting (low tech low tech application, application, requirements unknownrequirements unknown))

Online graphic support Online graphic support for advertising copy for advertising copy ((high tech application, high tech application, requirements unknownrequirements unknown))


Dimensions Influencing RiskDimensions Influencing Risk

• Project size Project size • Experience with technology Experience with technology • Requirements volatility (structured vs. Requirements volatility (structured vs.

unstructured)unstructured)

Project sizeProject size

Requirements VolatilityRequirements VolatilityStructuredStructured UnstructuredUnstructured

LargeLargeSmallSmall

ExperienceExperience

HighHigh

LowLow

Large, unstructured Large, unstructured project with new project with new

technologytechnology

Small structured project Small structured project with new technologywith new technology

Large, structured project Large, structured project with known technologywith known technology

“Low hanging fruit”



• Project size Project size • Experience with technology Experience with technology • Requirement volatility (structured vs. Requirement volatility (structured vs.






HighHigh

LowLow

Low risk Low risk (unstructured, high (unstructured, high experience, small project)experience, small project)

Medium risk Medium risk (structured, (structured, low experience, large project)low experience, large project)



• Project size Project size • Experience with technology Experience with technology • Requirement volatility (structured vs. Requirement volatility (structured vs.






HighHigh

LowLow

High risk High risk (unstructured, low (unstructured, low experience, small project)experience, small project) Very High risk Very High risk

(unstructured, low experience, (unstructured, low experience, large project)large project)

e-bu

sines

s pro

jects

e-bu

sines

s pro

jects


Risk Assessment Based on the Risk Assessment Based on the Strategic GridStrategic Grid

HighHigh

LowLow

HighHighLowLow

Impact of Impact of Existing IT Existing IT

applicationsapplications

Impact of Future IT Impact of Future IT applicationsapplications

FactoryFactoryOperational ITOperational IT

SupportSupportBasic elementsBasic elements

TurnaroundTurnaroundGradual adoptionGradual adoption

StrategicStrategicStrategic IT plan, Strategic IT plan,

initiativesinitiatives


Risk PortfolioRisk PortfolioP

roje

ct R

isk

Pro

ject

Ris

k

Very highVery high

HighHigh

MediumMedium

LowLow

New core New core valuevalue

New New benefitsbenefits

Improved Improved benefitsbenefits VariationVariation

Breakthrough systemsBreakthrough systems

New platformsNew platforms

Derivative systemsDerivative systems

Portfolio composed of different projectsPortfolio composed of different projects

Portfolio to mitigate risk

Portfolio to mitigate risk

Low-hanging fruitLow-hanging fruit


Project Management: Project Management: A Contingency ApproachA Contingency Approach

““There is no single correct approach to all projects”There is no single correct approach to all projects”• Management toolsManagement tools

– External integration – Link project team External integration – Link project team to system usersto system users

– Internal integration – Ensure project team Internal integration – Ensure project team operates as an integrated unitoperates as an integrated unit

– Formal planning – Structure sequence of Formal planning – Structure sequence of tasks, estimate time, money and resourcestasks, estimate time, money and resources

– Formal result controls – Evaluate progress Formal result controls – Evaluate progress and flag potential problemsand flag potential problems

Use Use dependsdepends on the on the projectproject


Implementation Risk CategoriesImplementation Risk Categories

Low Low TechnologyTechnology

High High TechnologyTechnology

High Requirements High Requirements VolatilityVolatility

Low Requirements Low Requirements VolatilityVolatility

Projects easy to manageProjects easy to manage• External integration necessary External integration necessary • Internal integration less Internal integration less

necessarynecessary• Formal planning tools, Formal planning tools,

traditionaltraditional• Results controls necessaryResults controls necessary

Projects not easy to manageProjects not easy to manage• External integration not crucial External integration not crucial • Internal integration crucialInternal integration crucial• Formal planning tools, less Formal planning tools, less

predictive valuepredictive value• Results controls limited, Results controls limited,

personnel monitoring important personnel monitoring important

Low-risk profilesLow-risk profiles• External integration criticalExternal integration critical• Internal integration necessaryInternal integration necessary• Formal planning tools, Formal planning tools,

traditionaltraditional• Results controls necessaryResults controls necessary

Extremely difficult and should Extremely difficult and should not be taken lightlynot be taken lightly

• External integration criticalExternal integration critical• Internal integration necessaryInternal integration necessary• Formal planning tools, less Formal planning tools, less

predictive value (due to predictive value (due to uncertainties)uncertainties)

• Results controls necessaryResults controls necessary


Risk ManagementRisk ManagementFrom Sprague and McNurlinFrom Sprague and McNurlin

• Types of riskTypes of risk– Technical – failure due to technologyTechnical – failure due to technology– Business – failure do due organizational issuesBusiness – failure do due organizational issues

• Assessment of risksAssessment of risks– Project’s leadership – commitment, experience, Project’s leadership – commitment, experience,

abilities, formal and informal management abilities, formal and informal management skillsskills

– Employee’s perspective – acceptance to Employee’s perspective – acceptance to changechange

– Scope and urgency – extent of change (breadth Scope and urgency – extent of change (breadth and depth), need to implement changeand depth), need to implement change


Risk ManagementRisk Management

LeadershipLeadershipEmployees’ Employees’ PerspectivePerspective

Project Scope Project Scope and Urgencyand Urgency

++

++

++

++

++

++

++--

--

--

--

--

--

--

Likelihood of Likelihood of Business Business ChangeChange

Recommended Recommended Project MethodProject Method

HighHigh

LowLow

Big BangBig Bang

ImprovisationImprovisation

Guided EvolutionGuided Evolution

Top-down Top-down CoordinationCoordination

Championed Championed DealmakerDealmaker

Championed Championed ImprovisionImprovision

Champion Guided Champion Guided EvolutionEvolution

Migrate or Kill Migrate or Kill the Projectthe Project

Less

Less

Risky

Risky

More

More

Risky

Risky


Other Aspects of IT Project Other Aspects of IT Project ManagementManagementBased on a Survey of 10 Executives in Based on a Survey of 10 Executives in SacramentoSacramento• Develop and compare feasibility, complexity, Develop and compare feasibility, complexity,

scalability and cost of possible solutionsscalability and cost of possible solutions• Project portfolio – investing in the right projectsProject portfolio – investing in the right projects• Aligning projects and initiatives to strategic objectivesAligning projects and initiatives to strategic objectives• Risk management – risk considerations, factors and Risk management – risk considerations, factors and

plansplans– Contingency plansContingency plans

• Managing multiple vendors and workflowManaging multiple vendors and workflow• Regulatory and compliance issuesRegulatory and compliance issues• Leveling resources over projects – human, financial, Leveling resources over projects – human, financial,

technicaltechnical


Other Aspects of IT Project Other Aspects of IT Project ManagementManagementBased on a Survey of 10 Executives in Based on a Survey of 10 Executives in SacramentoSacramento• Project planning, execution and scheduling – Project planning, execution and scheduling –

Prioritizing, defining performance measures, Prioritizing, defining performance measures, tracking processes to ensure performance, tracking processes to ensure performance, schedule resources, project monitoring, change schedule resources, project monitoring, change and service controls, quality assurance and and service controls, quality assurance and testing, identify key driverstesting, identify key drivers

• Project leadership – Assessing change and Project leadership – Assessing change and change management, communication and change management, communication and organizational skillsorganizational skills

• Adoption issuesAdoption issues• Identify and understanding stakeholdersIdentify and understanding stakeholders


Good IT Project ManagementGood IT Project Management

• Deliver on timeDeliver on time• Come in or under budgetCome in or under budget• Meet the original objectivesMeet the original objectives• Establish ground rulesEstablish ground rules• Foster discipline, planning, documentation and Foster discipline, planning, documentation and

managementmanagement• Obtain and document the “final” user requirementsObtain and document the “final” user requirements• Obtain tenders from all appropriate potential vendorsObtain tenders from all appropriate potential vendors• Include suppliers in decision makingInclude suppliers in decision making• Convert existing dataConvert existing data• Follow through after implementationFollow through after implementation

Successful project Successful project characteristicscharacteristics


Value of a System or ApplicationValue of a System or Application

• Benefits the business will receive from the ITBenefits the business will receive from the IT– IT by itself provides no benefits or advantagesIT by itself provides no benefits or advantages

• Measuring benefitsMeasuring benefits– Distinguish between the different roles of the Distinguish between the different roles of the

systems – support role, integral to strategy, or systems – support role, integral to strategy, or product/service offeringproduct/service offering

– Measure what is important to managementMeasure what is important to management– Assess investments across organizational Assess investments across organizational

levelslevels


Measuring Benefits: Role of SystemMeasuring Benefits: Role of System

• Measuring organizational performance – ability to Measuring organizational performance – ability to support the organization and its users with their support the organization and its users with their taskstasks

• Measuring business value – help meeting Measuring business value – help meeting organizational and business goalsorganizational and business goals

• Measuring a product or service – profitability of Measuring a product or service – profitability of product or serviceproduct or service


Measuring Benefits: Importance to Measuring Benefits: Importance to ManagementManagement

• IT is usually not viewed as a revenue generatorIT is usually not viewed as a revenue generator– Investment to improve the businessInvestment to improve the business

• Corporate effectivenessCorporate effectiveness• Less tangible benefits includesLess tangible benefits includes

– Customer relations (satisfaction)Customer relations (satisfaction)– Employee moraleEmployee morale– Time to complete an assignmentTime to complete an assignment


Measuring Benefits: Across the Measuring Benefits: Across the OrganizationOrganization

• Potential benefits differ at Potential benefits differ at various organizational levelsvarious organizational levels

• DimensionsDimensions– Economic performance Economic performance

payoffs (market payoffs (market measures of measures of performance)performance)

– Organizational processes Organizational processes impact (measures of impact (measures of process change)process change)

– Technology impacts Technology impacts (impacts on key (impacts on key functionality)functionality)

Indi

vidu

al

Indi

vidu

alDiv

ision

Divisi

onCor

pora

te

Corpo

rate

Sources of ValueSources of Value

Assess IT’s impact Assess IT’s impact in each cellin each cell


Value of IT Investments to InvestorsValue of IT Investments to Investors

• Brynjolfsson, Hitt and Yang studyBrynjolfsson, Hitt and Yang study– Every $1 of installed computer capital yielded Every $1 of installed computer capital yielded

up to $17 in stock market value, and no less up to $17 in stock market value, and no less than $5than $5

– Led to organizational changes that created $16 Led to organizational changes that created $16 worth of “intangible assets”worth of “intangible assets”

– Past IT investments correlated with higher Past IT investments correlated with higher current market valuecurrent market value



• Brynjolfsson and Hitt studyBrynjolfsson and Hitt study– Organizational factors correlated to and Organizational factors correlated to and

complemented IT investmentscomplemented IT investments• Use of teams and related incentivesUse of teams and related incentives• Individual decision-making authorityIndividual decision-making authority• Investments in skills and educationInvestments in skills and education• Team-based initiatives Team-based initiatives

– Businesses making the highest IT investments Businesses making the highest IT investments not only invest in IS but also invest in making not only invest in IS but also invest in making organizational changes to complement the new organizational changes to complement the new ISIS



• Brynjolfsson and Hitt study (Brynjolfsson and Hitt study (cont.cont.))– Led to adoption of decentralized work practicesLed to adoption of decentralized work practices

• Frequent use of teamsFrequent use of teams• Employees Employees empoweredempowered (i.e., given broader (i.e., given broader

decision-making authority)decision-making authority)• Offer more employee trainingOffer more employee training



• Brynjolfsson, Hitt and Yang studyBrynjolfsson, Hitt and Yang study– Companies with the highest market valuation Companies with the highest market valuation

had the largest IT investments and had the largest IT investments and decentralized work practicesdecentralized work practices

– Market value of investing in IT is substantially Market value of investing in IT is substantially higher in businesses that use these higher in businesses that use these decentralized practices because each dollar of decentralized practices because each dollar of IT investment is associated with more IT investment is associated with more intangible assets because the IT investments intangible assets because the IT investments complement the work practices complement the work practices

ITIT

Other resourceOther resource

LeveragingLeveraging

Documents

R. Ching, Ph.D. MIS Area California State University, Sacramento 1 Week 11 Monday, April 10 Portfolio Approach to Managing IT ProjectsPortfolio Approach