Portfolio management moves into prime time

Business was booming at MGM Mirage, but the resort and casino operator needed to find a better way to manage its many IT projects. A comprehensive portfolio management strategy turned out to be its best bet.

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Fueled by significant business developments, MGM Mirage Inc. is reassessing how it manages and applies information technology. Among other happenings in 2005, the hospitality and gaming company finalized its merger with Manley Resorts and broke ground on a $7 billion construction project in Las Vegas.

The sprawling 70,000-employee company includes 25 resort properties in Nevada, Mississippi and Michigan, each with a distinct market demographic. Yet despite heady business growth, MGM Mirage sensed it was losing out on other opportunities because of the fragmented manner in which IT investments were made.

MGM Mirage is taking steps to rein in costs and get a better understanding of the role its technology assets play in strategic growth. Rather than disjointed IT purchases and projects, MGM is implementing techniques to manage its information technology as a portfolio of assets -- much like investors do with stocks, bonds and securities.

"Within our enterprise we have 25 different functional vertical [lines of business]," including hotels, casinos, ticketing and attractions, food and beverage, Soto said. "Within the realm of the enterprise, we're looking at our decisions and [IT] portfolios based on function," rather than individually.

Guiding the process are steering teams that examine each functional grouping within MGM Mirage. Composed of employees from business units as well as IT, these teams guide executive spending decisions by honestly assessing the value of each project. Redundant projects are winnowed from the pile. Initiatives that directly support a key business objective are prioritized and recommended for funding.

Since implementing portfolio management within the last year, requests for new IT projects have been reduced about 30%, Soto said.

"The bottom line is that we're driving every single one of our decisions based on how our technology ties back to a business objective," Soto said.

She added: "For many years this IT organization was more of a support [function]. We're moving the pendulum over and being more of a strategic partner, an enabler, of the business."

Turning analysis into knowledge

MGM Mirage is among a growing number of enterprises taking a fresh look at their IT resources, particularly from a strategic perspective. Although the concept of portfolio management first appeared in IT circles in the 1970s, its greatest uptake has occurred since the tech wreck of 2000, when organizations focused on running lean and mean.

Companies most often use portfolio management to control the flow of new projects, manage existing projects more efficiently and eliminate fluff, said Robert Handler, an analyst at Stamford, Conn.-based Gartner Inc.

"The most prescient early adopters found they could cut 15% to 25% of projects or proposed projects without negative impact to the business," Handler said.

This entails more than taking inventory of your systems and applications, although that is important. More usefully, it refers to the subsequent analysis of those systems, and how they support or facilitate specific business initiatives, so companies can make more informed decisions about their future direction.

As such, portfolio management contributes to IT governance in at least two ways, said Richard Thompson, information officer for the state of Maine's Office of Information Technology.

"First, it helps you determine where resources should be spent to maintain your existing infrastructure. It also helps you strategically plan future investments, which is a huge part of IT governance," said Thompson, whose organization began implementing portfolio management practices about nine months ago.

Strategic targets and investment

Margo Visitacion, an analyst at Forrester Research Inc. in Cambridge, Mass., said portfolio management is best suited to organizations with mature business processes.

"The level of rigor in your planning is going to vary depending on the size of the projects and their complexity, but you still need to answer basic questions: 'What are we doing? Why are we doing it? What is the value of the project?'" Visitacion said.

In addition, companies must "be able to balance the amount of analysis they're able to perform against the level of planning and execution" they can deliver, Visitacion said.

Although software can help organizations automate certain business processes, the hard work of portfolio management consists of skull sessions between IT professionals and business users.

"Tools are secondary. The real issue is change management: getting senior executives to buy in to the fact that the way decisions are made needs to change. This is a huge challenge," said Wes Kahle of Kahle Partners, a Washington, D.C.-based CIO advisory firm.

To illustrate, state IT professionals in Maine are hammering out a strategic plan that includes a portfolio of future projects. Developed in conjunction with business users representing various state agencies, it compares anticipated business needs against existing IT assets, and probes deeper to target future spending priorities.

Keep things simple

Portfolio management is a disruptive methodology that will bruise egos and cause sparks to fly. At its core is a fundamental change in the way organizations make decisions about business projects and how they will be accomplished.

"Doing portfolio management means pulling back the cover on what is happening. The distribution of power is going to be readjusted somehow. At some point, someone is going to win and someone is going to lose," said Mykolas Rambus, also of Kahle Partners.

Companies must discover the right balance between too much detail and not enough.

"You can't design processes that are so rigid that they only fit one potential scenario, but so they will fit a multitude of scenarios," Visitacion said.

To avoid getting bogged down, Handler advises companies to keep business analytics simple when launching portfolio management.

"Businesspeople don't like a lot of noise -- they want the bottom line. Just keep it simple: What's the return, what's the risk, where are the interdependencies, how does this align with our strategy," he said.

Organizations also need to be patient to see the payoff, which is why it is critical to fully understand corporate objectives and the supporting role that technology plays.

"The greatest lesson we learned is that it takes more time than you would think. People may not see the value early on. You need to develop your work plan and be convincing with your argument to those folks you want to participate," Thompson said.

Garry Kranz is a freelance business and technology writer in Richmond, Va. He can be reached at gkranz@ureach.com.

This was first published in September 2006

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