QuickStudy: Project Portfolio Management

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March 18, 2002 (Computerworld) -- The importance of diversification has been one of the toughest lessons learned from Enron Corp.'s bankruptcy.

It's nothing new, though. In fact, diversification has been a staple of the financial world for half a century.

But the idea of IT portfolio management has been tossed around academic circles only since the 1980s, and for the most part, it didn't started making its way into IT departments until a few years ago.

As its name implies, project portfolio management groups projects so they can be managed as a portfolio, much as an investor would manage his stocks, bonds and mutual funds. In the 1950s, University of Chicago economist Harry Markowitz wrote that a portfolio of diverse investments is more likely than individual investments to reduce risks and produce a higher rate of return.

In the IT world, the obvious benefit of project portfolio management is that it gives executives a bird's-eye view of projects so they can spot redundancies, spread resources appropriately and keep close tabs on progress.

But what's most appealing to many CIOs is the focus on projects as a portfolio of investments. Discussions aren't just about how much a project will cost, but also about its anticipated risks and returns in relation to other projects. This way, entire portfolios can be jiggered to produce the highest returns based on current conditions.

Since the recession began, companies have been looking at the multimillion-dollar IT investments made during the past decade and trying to determine what returns, if any, they saw from those investments and what they can expect in the future.

That's where portfolio management comes in. It takes a lot of details and organizes them in an easily digestible form. It helps executives see where money is spent, why projects are or aren't necessary and what resources are needed.

A growing number of vendors offer project portfolio management software, which has dramatically simplified the process of building a portfolio. But the first step, says Howard Rubin, executive vice president at Meta Group Inc. in Stamford, Conn., is for companies to prioritize their business strategies. Portfolios can then be assembled and assessed based on how they meet those strategic needs.

Previously, projects were approved and then managed independently. They were evaluated as a whole at the executive level only when it came time to put together annual reports. But, says Rubin, in markets that move every day, a company needs that overall view so it can keep an eye on projects in real time to make sure that all of them are working together to meet core business goals.

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