What Is in Our IT Portfolios? 

 
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 Erik Guldentops, CISA, CISM 

Figure 1In future columns, we will revisit the results of the empirical analysis performed within the Val IT™ initiative, which looked at more than 3,000 IT projects. An interesting side product of this research provided insight into the composition of IT portfolios. This column illustrates how portfolios change with the strategic direction of the entity, but also shows how the different categories of projects fare in terms of financial and delivery performance.

Apart from the common distinction between mandatory and discretionary projects, an increasingly accepted manner for categorising project types is the following:

  • Strategic (to gain competitive advantage)
  • Informational (to provide management information)
  • Transactional (to process transactions and cut costs)
  • Infrastructural (to provide shared IT capability enabling applications)

For close to 100 projects, analysed data were available on project type and the primary business driver of the entities involved. The primary business drivers were:

  • Cost optimisation
  • Business growth
  • Organisational efficiency

These drivers are depicted by project type in figure 1.

When the main driver is cost reduction, it is fairly evident that investments focus on automating the core business functions and, therefore, that transactional projects are in the majority; in comparison, infrastructure projects, such as networks or common platforms, or informational projects, such as customer relationship management (CRM) or data mining, have a lower priority. What is less evident is that, in addition to the focus on transactional projects, strategic projects still get a lot of attention.

A bit more surprising was the size of the infrastructure projects portfolio when organisational efficiency was the primary business driver. It appears that businesses are catching on to what researchers and thought leaders have been saying about the efficiency gains of standardised and reusable infrastructures.

When the driver is business growth, investments in strategic and informational projects remain very similar compared to the efficiency focus, but there is a big shift between the infrastructure and transactional investments.

Analysis of these data also provides insights into several other aspects of these projects categories, including:

  • The average internal rate of return
  • The solution delivery performance
  • Total portfolio value

The return from informational projects is several times that of the other categories, but they do not appear to be many or extensive in scope, as the total value graph (in figure 2) indicates. They comprise a little more than 5 percent of the total portfolio, while—not surprisingly—strategic and infrastructural projects represent the bulk of the IT portfolio.

Regarding solution delivery performance, the differences are not very big, but CRM and other informational projects do struggle a bit more.

As with many of these empirical analyses, every finding creates another 20 questions. For example, if the internal rate of return is so low on infrastructure projects, why do they get such a high priority when operational efficiency is the key business driver?

That question alone shows that there is still a lot to learn about identifying the benefits and return from IT investments, and about actively managing those benefits.

Figure 2

Erik Guldentops, CISA, CISM
is executive professor at the Management School of the University of Antwerp (Belgium). He has initiated and provided leadership to the COBIT and Val IT initiatives since their inception.

Editor's Note

Learn more about Val IT at www.isaca.org/valit.

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