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Portfolio Management

Portfolio management is the application of systematic management to large classes of items managed by enterprise capabilities. Examples of portfolios would be planned initiatives, projects, and ongoing services (such as application support). The promise of portfolio management is the quantification of previously informal efforts, enabling measurement and objective evaluation of investment scenarios.

Overview

Portfolio management started with a project-centric bias, but is evolving to include steady-state portfolio entries such as infrastructure and application maintenance. Budgets tend not to track these efforts at a sufficient level of granularity for effective financial tracking.

The concept is analogous to financial portfolio management, but there are significant differences. Financial portfolio assets typically have consistent measurement information (enabling accurate and objective comparisons), and this is at the base of the concept’s usefulness in application to IT. However, achieving such universality of measurement is going to take considerable effort in the IT industry. IT investments are not liquid, like stocks and bonds (although investment portfolios may also include illiquid assets), and are measured using both financial and non-financial yardsticks (for example, a balanced scorecard approach); a purely financial view is not sufficient. Finally, assets in an IT portfolio have a functional relationship to the organization, such as an inventory management system for logistics or a human resources system for tracking employees' time. This is analogous to a vertically integrated company which may own an oil field, a refinery, and retail gas stations.

Portfolio management is distinct from financial management in that it has an explicitly directive, strategic goal in determining what to continue investing in versus what to divest from.

Types of Portfolios:

Application Portfolio - Management of this portfolio focuses on comparing spending on established systems based upon their relative value to the organization. The comparison can be based upon the level of contribution in terms of IT investment’s profitability. Additionally, this comparison can also be based upon the non-tangible factors such as organizations’ level of experience with a certain technology, users’ familiarity with the applications and infrastructure, and external forces such as emergence of new technologies and obsolescence of old ones.

Infrastructure Portfolio - This For an organization's information technology, infrastructure management (IM) is the management of essential operation components, such as policies, processes, equipment, data, human resources, and external contacts, for overall effectiveness. Infrastructure management is sometimes divided into categories of systems management, network management, and storage management. The ability of organizations to exploit IT infrastructure, operations and management sourcing/service solutions not only depends on the availability, cost and effectiveness of applications and services, but also with coming to terms with solution providers, and managing the entire sourcing process. In the rush to reduce costs, increase IT quality and increase competitiveness by way of selective IT sourcing and services, many organizations do not consider the management side of the equation. The predictable result of this neglect is overpayment, cost overruns, unmet expectations and outright failure.

Project Portfolio - This type of portfolio management specially address the issues with spending on the development of innovative capabilities in terms of potential ROI and reducing investment overlaps in situations where reorganization or acquisition occurs. The management issues with the second type of portfolio management can be judged in terms of data cleanliness, maintenance savings, suitability of resulting solution and the relative value of new investments to replace these projects.

Information Technology portfolio management as a systematic discipline is more applicable to larger IT organizations; in smaller organizations its concerns might be generalized into IT planning and governance as a whole.