Emerging enterprise portfolio management (EPM) systems are gaining steam as a means to objectively assess the cost and value of an organization’s portfolio of IT assets and to align decisions with corporate strategy. But what do these systems really tell us about the way our actions will actually affect organizational performance?

Dave Vellante
President and CEO, ITCentrix

As seen in ComputerWorld

Emerging enterprise portfolio management (EPM) systems are gaining steam as a means to objectively assess the cost and value of an organization's portfolio of IT assets and to align decisions with corporate strategy. But what do these systems really tell us about the way our actions will actually affect organizational performance? New thinking is required to more fully exploit the best aspects of EPM while recognizing its inherent drawbacks. Specifically, many aspects of today's enterprise portfolio management systems, while creating the perception of measuring the impact of proposed business strategies, are actually disconnected from key performance indicators (KPI's) of the organization.

Setting organizational strategy is getting harder. As industries slowly regain momentum, the choices for executives are substantial and the risks high. Merge, acquire, sell, go into bankruptcy, plan for disaster, plan for a work stoppage, layoff, hire, invest, divest or some combination thereof is actively under consideration in corporate boardrooms. The need to understand the effects of decisions (so-called "what if planning") is pressing.

But knowing what I know about today's enterprise portfolio management systems (my firm builds and sells them) I can't help but think we may be fooling ourselves into thinking that we're driving corporate performance to new heights when in fact what we're really doing is a better job of codifying what we intuitively know about our IT portfolios and reducing the time (and person power) required to reach a consensus.

Don't get me wrong; these are good things, and much more desirable than doing nothing. But the promises of modern enterprise portfolio management are much more lofty and industry providers should deliver more. In a recent article published in the May 2003 issue of the Harvard Business Review entitled "Don't Trust Your Gut," the author, Eric Bonabeau makes a strong case that "Intuition plays an important role in decision making, but it can be dangerously unreliable in complicated situations." He goes on to describe an emerging field of business analytics that "harness the power of human intuition" by allowing human instinct to be applied to computer-assisted analysis where the human brain is simply incapable of identifying and analyzing non-intuitive trends.

This brings me back to my assertion that today's emerging enterprise portfolio management systems are largely disconnected from key business metrics.

To support this, consider the following observations:

• Much of so-called enterprise portfolio management is focused on project management or project portfolio management. This trend is perpetuated not only by vendors, but the real need organizations have in trying to streamline the project selection process. Nonetheless, a project portfolio typically represents well under half of a company's IT investment, with the lion's share allocated to ongoing operations. The connection between projects and the rest of the portfolio is barely if ever measured.
• Asset values are typically measured in two broad dimensions: 1) "Business Value" and 2) Cost. The latter is measured in hard dollars, that much is clear. Business value however is most typically measured as a score. Balanced scoring is well regarded and rightly so with successes in virtually every industry. However, the objective of the balanced scorecard is not to directly express results in financial terms; yet today's EPM systems clearly tout a measurable link to organizational KPI's (e.g. revenue) while too heavily leaning on scoring to make that linkage.
• Today's so-called "closed loop" EPM systems really aren't closed loop feedback systems. Costs are closed but value typically isn't. For example, if I have a $100M IT budget and I consolidate an asset that costs $10M to manage, the system keeps track of my $10M surplus and reports on it. But if the value of a portfolio asset increases, my relative asset scores may get reshuffled (in a good system) but my absolute asset scores aren't credibly translated into a business metric like revenue. Rather, they just float in a disconnected way from any meaningful business measurement.
• Most EPM systems aren't organic, meaning as changes occur at the business level; the results of the portfolio analysis aren't reflected until asset values are reassessed. For example, say I establish a series of portfolios, one for my line of big trucks and another for my line of expensive luxury cars. Now let's say in the current quarter, business for big trucks is booming but business for my expensive line of luxury cars is way off. The way most EPM systems work, nothing happens when I load my quarterly data until I re-score my assets to reflect the business change. In today's world of the real time enterprise, such systems seem antiquated.

Enterprise Portfolio Management Systems

How they Should Work

How they Typically Work

So, what's the answer? First, I strongly believe that the value delivered by today's EPM systems is substantial and can have major positive impacts on organizations. But we need to recognize them for what they are (my company's systems included), be they project management, project selection or automated asset definition, scoring and analysis systems.

I'm looking for, and challenge the industry (consultants, software vendors, scholars and IT professionals) to deliver next-generation systems that provide more explicit links to business indicators such that the entire enterprise can be viewed as a single, organic entity with its piece parts defined, interconnected and measured. This is a vision the team at ITCentrix is actively pursuing.

We would also suggest that such a system include the following attributes:

• The ability to define top down goals, objectives and scenarios while allowing bottom up changes to be reflected and reconciled to corporate targets.
• A truly closed loop for both cost and value and a means of linking to organizational KPI's such as income statements and other relevant metrics. As well, this system would dynamically reflect changes in market conditions in defined portfolios.
• The ability to connect IT as an integral part of the business, and assess the non-IT components of a business.
• The ability to embed industry-specific data and knowledge in order to expand corporate KPI's and enhance relevance. An example might be average sales per retail customer per store visit.

It is important to distinguish this last point from traditional business intelligence (BI) solutions that regularly track and analyze this type of information. Rather, this approach proposes leveraging such systems into an analytics engine that assists in providing “what if”' support in complex situations after such relationships are firmly established using proven BI techniques.

There's no replacement for human interaction in enterprise portfolio management systems. But there's plenty of room to augment those factors that intuition and "return on instinct" can't discern.