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IT Portfolio Management's Benefits a Draw for Midmarket Companies

IT portfolio management can help organizations manage costs, reduce risk and improve decision making for IT investments.

Midmarket fims are investigating portfolio management -- no longer the sole province of large enterprises -- to manage costs, reduce risk and improve IT investment decision making.

IT portfolio management started out modestly enough at W.P. Carey & Co. in New York City, as it often does at midsized firms like this $225-million real estate investment management company.

"Our IT governance structure was really just me in a room with the CEO, determining what were the correct purchases," says Mykolas Rambus, who signed on in 2002 as CIO at W.P. Carey, which owns and manages assets worth $7 billion. When he arrived, the company's small technical team was burning out just trying to keep everything up and running.

"There wasn't a good interface with the business, the people who are investment professionals," Rambus recalls.

Fast-forward to the present. The CIO is now part of an executive steering committee that has grown far beyond prioritizing the projects managed by his 10-person IT staff. The senior managers focus instead on new and existing initiatives most likely to drive business in the highly competitive real estate space.

"The thing I like most about this team," says COO Tom Zacharias, "is that we can approach our business as though we have an in-house technology consulting group, like a SWAT team. To me, it's been a great way to drive tech improvements."

How Rambus brought his team so far in three years speaks volumes about the 26-year-old MIT graduate and onetime high-tech entrepreneur. But it also highlights the burgeoning importance of the craft of IT portfolio management (PM). Its appeal is catching on at many fast-growing midsized companies because managing IT this way can reduce risks, cut costs and bring IT and business decision makers together.

At its best, portfolio management is inseparable from IT governance, a major control point where senior executives come together to evaluate multiple projects, budgets, priorities and resources. Whatever software or tools a company uses -- and there are dozens to choose from -- matter much less than the governance process itself, CIOs and industry experts agree.

"I've seen a lot of business executives better able to understand the issues on IT and investment after these conversations," says Jeff Kaplan, author of Strategic IT Portfolio Management and a director at the management consultancy PRTM in Waltham, Mass. "In the first hours of the process, some companies save hundreds of thousands of dollars just by red-lining or canceling projects that were well intentioned but weren't a priority."

Software can also play a significant role in managing the IT portfolio, and midmarket companies make up at least 60% of the customers buying applications in this space, says analyst Evan Quinn of Framingham, Mass.-based IDC, which tracks some 48 vendors in this segment and estimates the scope of the project and portfolio management market broadly at $2.1 billion in annual sales.

"The average implementation of PM systems is still down in the range of 250 to 400 users," notes Rich Murphy, founding partner at EPK Group LLC in Jupiter, Fla., which builds portfolio and resource management systems. "It isn't the size of the organization that determines the type of system you need. In terms of the basics, midmarket companies need the same type of systems that larger firms do." (See "PM Tools: The Spectrum.")


Exercising Control, Midmarket-Style

During Rambus' first year at W.P. Carey, the CIO focused on stabilizing the IT infrastructure and then establishing a reputation for operational excellence on the tech side. "That's the entry price of talking about your future projects," he notes. "I believe the CIO has to be a business accelerator. What I want to be looking for are business opportunities."

PM Tools: The Spectrum
Any accounting of portfolio management (PM) software should start with two warnings.

First, this market -- home to at least 50 different vendors -- is highly fragmented, continually in flux and somewhat blurry at the boundary between project and portfolio management tools; and second, no PM software will help your organization manage IT investments unless the business processes are already in place to evaluate where company resources should go.

But the need to prove the business value of IT, to manage ever more finite budget resources and to respond to regulatory scrutiny are all-powerful forces driving CIOs to consider portfolio management products. Pricing can range from as low as $40 per seat for Web-based hosted PM software to $2,000 a seat for the most sophisticated offerings.

The biggest or best-known players vying for PM dollars include Microsoft Corp., IBM, SAP, Oracle Corp., Computer Associates International Inc., Mercury Interactive, Primavera Systems Inc., Compuware Corp. and PlanView Inc. Other long-standing vendors in this space include Portland, Ore.-based ProSight and United Management Technologies (UMT) in New York.

On the vendor side, one emerging trend -- which is bound to further blur the distinction between project and portfolio tools -- is to shy away from being lumped into the "project management" category at all, says Rich Murphy, founding partner of EPK Group LLC. Given the legendary high percentage of failed IT projects, "The word 'project' has a negative connotation among C-level execs," he notes.

One way to view the teeming field of PM software, Murphy suggests, is to divide the vendor offerings into four categories:
  1. Strategic decision-making systems. This category includes products such as Prosight Portfolios; UMT's Portfolio Manager software suite; and decision support applications from Expert Choice Inc. in Arlington, Va. These systems emphasize mathematical rigor and specific algorithms for ranking business objectives and spending priorities.

  2. Tactical portfolio management systems. This group helps IT and business users prioritize projects and resources and manage the portfolio on a day-to-day basis. Products include PlanView's Enterprise, CA's Niku Clarity, Mercury's BTO Enterprise, Compuware's Changepoint and the EPK Portfolio suite.

  3. Scheduling and planning tools. MS Project dominates this category as the most commonly used tool for tracking project metrics. Evan Quinn of Framingham, Mass.-based IDC. says that MS Project accounts for 44% of the $2.1-billion project and portfolio management market.

  4. Process/collaboration tools and methodologies. This category includes consulting firms and vendors promoting better portfolio management through improved processes and/or collaboration environments, such as Seattle-based eProject; PRTM in Waltham, Mass.; Enrich Consulting Inc. in San José, Calif.; and IDe in Concord, Mass.

Other CIOs echo that business focus and stress the importance of joint ownership of IT portfolio planning and spending. "Success for me has been having our business council vote down a couple of key projects, saying, 'We can't do them now,'" says CIO Jean Holley of Tellabs Inc. in Napierville, Ill. "Usually it's IT saying, 'We can't get to it,' but this was the business saying no."

After spending most of her career leading IT at larger enterprises, such as $4.5-billion USG Corp., Holley took the CIO job at $1.5-billion Tellabs last spring, eager to "roll up my sleeves and do things." She found 150 active projects under way at the telecom, with no IT governance in place.

Her immediate focus was on putting that governance structure in place, not stocking up on software tools. "All of our key investments now have business cases, and we're working on a variety of things related to Governance 101," Holley says. "This year we're adding project review for both IT and business projects."

She set up a business council of vice presidents and directors who meet monthly to assess projects and decide where to invest resources. A higher-level steering council includes Holley's C-level peers, who report to the CEO. The business council now has portfolio management tools under discussion, the CIO says, but she has been careful not to push the tools before the business needs are mapped out.

That's the smartest way to approach portfolio management, say experts and analysts, who cite horror stories about costly software investments in tools no one ever used. "You've got to get the business stuff functioning first," says IDC's Quinn.

Rewriting a Failed Legacy

At Amerisure Mutual Insurance Co., Ed Cullari has lived through the transition of IT from cost center to business partner. Brought into the Farmington Hills, Mich.-based insurer in March 2004 as its fifth director of the project management office (PMO), he faced a legacy of project failures and disgruntled business managers.

"Cultural issues were one of the biggest challenges. Everybody has their own way of doing things," Cullari says. "The dysfunctions came from across the teams, even in one area of application development to another. Nobody's processes were aligned."

As a former consultant at the company, Cullari knew that past failures had convinced employees that resistance was the best strategy. "They figure we'll just go away," he says. To combat that, he lined up crucial executive support before he accepted the job. He built a business case for the PMO complete with ROI calculations, a project rating scorecard, a statement of work detailing the project scope and a sales pitch to the executive board.

"I had to make them understand, 'You're the business; you need to know this,'" Cullari recalls. "They were amazed that somebody from IT was going to show them all the projects and give them access."

Cullari provides that access through Web-based project management software from eProject in Seattle, Wash. After evaluating it against other tools from Microsoft, Computer Associates/Niku and Primavera, Cullari found eProject to be "about one-fourth the price of the others." That cinched it, and the company is now heading toward 400 installed seats. "We are hosting eProject here rather than using their ASP [application service provider] model," he says. "For under $100,000, I got 75 seats plus my two servers, on-site training -- everything, soup to nuts."

His choice of eProject especially impressed his CFO with its more frugal, practical approach. "How was I going to justify spending half a million to $650,000 on something that isn't going to build anything?" Cullari asks.


Confronting Sticker Shock

Six-figure price tags do present a significant obstacle for many CIOs at midsized companies as they peruse the crowded field of portfolio management tools. "It's very daunting for midmarket companies," says Henry Bevilacqua, director of network, telecom and operations for the New York-based Girl Scouts of the USA. The corporate headquarters of the Girl Scouts is a $200-million company, he estimates, since the proceeds from those famous cookies flow directly back into the individual chapters. The IT organization has 40 staffers, and its director reports to the CFO. "None of the PM systems I've seen are tailored for our world, for nonprofit companies of our size," says Bevilacqua. "Most of the systems really are intended for the larger-scale companies."

Yet he's still looking for something to help his organization move beyond the ad hoc processes that support it today. "We have to be able to identify for the business what kind of value proposition we have," says Bevilacqua, whose IT budget is a surprisingly high 7% to 10% of the overall organization's spending. "A lot of that is because of the way we do business. We don't do a lot of strategic planning as an organization."

Using Microsoft Excel spreadsheets and MS Project to track IT initiatives means "we don't have a single source" of project information, Bevilacqua notes. A steering committee of senior executives does meet several times a year to talk about where various projects are heading, but frustration is mounting on both sides, he adds.

Stumbling Through Cultural Change

Political and cultural upheaval are indeed inevitable in even the most well-meaning attempts to change a company's decision-making processes. Portfolio management is a team sport that requires business executives on the playing field with the CIO.

PRTM consultant Kaplan spends time with clients in the throes of changing their organizations from within. It feels a lot like marriage counseling, he observes wryly. In a recent consulting engagement, he worked with the bitterly divided division of a large corporation. "It was almost a standoff between the IT department and the business managers, with a lot of finger-pointing and criticism going on."

Consultants found that the company's portfolio management process was ad hoc and informal, with budget authority and supervisory power scattered among so many managers that no one had a comprehensive grasp of where all the resources were going. "It was very difficult for the CIO to get all the decision makers around the table," Kaplan says.

Interestingly enough, it wasn't C-level executives blocking progress, Kaplan says, but the division heads who were most fiercely resistant to change. In this case, the CIO was new and pushing for noticeable changes, and senior executives backed him up by serving as the primary PM review board. Once they got their first real glimpse into the IT spending portfolio, they decided to redirect additional spending toward new development instead of costly enhancements to older systems.

"Together," Kaplan says, "they were able to make better decisions than any one of them would have otherwise."

Maryfran Johnson, is the founding editor in chief of CIO Decisions. To comment on this story, email

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