IT investment model wins converts

Computerworld - A growing number of businesses—led by blue-chip companies such as J.P. Morgan Chase & Co., Johnson & Johnson and Metropolitan Life Insurance Co.—are evaluating their IT investments with a more discerning eye by treating technology assets and projects more like financial portfolios.

According to research conducted by Stamford, Conn.-based Meta Group Inc., one in eight U.S. companies say they are now applying a portfolio management approach to evaluate their IT investments, compared with one in 12 companies in March. The new figures are based on input gathered from 1,332 IT managers during the second quarter, Meta said.


IT executives and analysts said portfolio management can help companies better manage technology. The cost of IT projects is measured against their potential financial value, risk and business impact, and budgets can then be allocated to the ones with the highest potential returns.


Some companies that have adopted the portfolio management model said they're seeing a real bottom-line impact. For instance, Merrill Lynch & Co. has saved between $25 million and $30 million over the past year by slowing down or stopping planned initiatives and redirecting project funding faster and more effectively than it used to, said Marvin Balliet, chief financial officer for the company's global technology and services division.


Case in point: Merrill Lynch's asset management business in the U.K. ended up deferring two software development projects in March, one to develop a tool to help separate stock trades in investor portfolios and the other to create software for integrating market data about shifts in bond prices. After discovering that the firm's U.S. asset management group already had similar projects under way, the U.K. division decided to wait for those applications and redirected some of the money it was spending into other projects. That decision probably saved Merrill Lynch more than $3 million in redundant development costs, Balliet said.


Under Pressure


IT portfolio management isn't entirely new to big financial services firms such as Merrill Lynch, which have adopted the precepts from their investment banking groups. The concept has been discussed in academic circles since the 1980s and began making its way into corporate IT departments a few years ago.


But it does represent a new tack for many companies that are under intensifying cost pressures. "It's like the Jerry Maguire syndrome: Show me the money," said Howard Rubin, a Meta Group analyst.


Interest in IT portfolio management "is coming up a lot these days in building credibility between CIOs and CFOs," said Jeremy Grigg, an analyst at Gartner Inc. CIOs are increasingly being pushed to "look through the life of a project or program and determine when to kill" it, he added.