IT Success!: Towards a New Model for Information Technology

4.7. Approving demand based on portfolios

IT spending on new projects and running production systems represents an investment (in the general sense of the term, whether its capex or opex). You therefore expect a pay-back in the form of business benefits, either in financial terms (e.g. increased revenue or decreased costs) or operational terms (e.g. decreased order cycle time or reduced customer service handling time). Demand for IT spending in the average company is very high (2–10% of revenue and up to 50% of capital spend), spans all BUs and always exceeds IT's ability to deliver in terms of budget, resource and scheduling constraints. With so much competing demand coming in at the top of the pipeline, and only so much being approved at the other end (see Figure 4.1), it would make sense to spread it across a number of well-defined investment categories based on a combination of business objectives, expected return and risk.

An analogy is personal investment, in which we spread our money across various categories based on personal objectives, expected return and risk. The resulting portfolio would comprise, for example, cash, stocks, bonds and a mortgage, each of which represents a different mix of risk and return (see Figure 4.5).

Portfolio planning is as applicable to IT investment as it is to personal investment. An IT portfolio would be well-balanced across new projects and running and enhancing production systems, based on business objectives, expected return and risk. ...