Risk and return: how will your company's portfolio-management strategy affect you? - The Bottom Line

Communications News, June, 2003 by Lenny Liebmann

In this column, we often look at the intersection of network technology and business disciplines. There are plenty of people out there who can debate the merits of H.323 vs. SIP or help you decide which authentication solution is best for you. My job is to keep you focused on ensuring that the technology decisions you make are as closely aligned as possible with the real-world requirements of your business.

That is why I want to use this month's column to talk about portfolio management.

Portfolio management is a bit of a buzzword, but it describes a phenomenon that is taking hold at more and more companies. Essentially, with portfolio management, you assess the various resources and initiatives at your company in much the same way as you would assess an investment portfolio. As with an in vestment portfolio, you are always looking for places to put your money that will yield high returns. As with financial investments, however, you do not only look at raw potential returns. Other factors, such as risk and portfolio diversity, also come into play.

Portfolio management is gaining favor because of the simple fact there are many more potential technology projects wing for attention than there are resources to support them. IT executives need some way of deciding which ones live and which ones die. Portfolio management offers a credible method for doing so.

I bring portfolio management to your attention for a couple of reasons. First of all, if your CFO and CIO are adopting a portfolio-management strategy, then you better know about it. All operational spending and capital projects will be judged by its standards. So, an understanding of portfolio management will be critical to both pitching new projects and defending budget turf.

Second, realizing that portfolio management is not just about ROI is important. That is probably good news for network managers, who have always struggled with quantifying the return on investment for a new intrusion detection system or an increase in the size of a frame relay circuit. With portfolio management, you also look at risk. So, a low-risk undertaking-such as upping that circuit size-will be able to compete with a software development project that promises big returns but also carries serious risk of failure.

With portfolio management, considering the risk of not doing something is also important. That is another advantage for network managers who know that application performance and staff productivity can be adversely affected if necessary bandwidth is not added to a circuit--and that even worse consequences can result if appropriate security measures are not put in place. Again, limited ROI analyses do not factor in these critical considerations.

Portfolio management, however, will not necessarily be an unmixed blessing for network managers. Remember that portfolio management is typically applied to current operational spending, as well as new projects. So, a full-fledged portfolio-management initiative will call everything into question. That is not something that most network managers look forward to.

Also, there is no guarantee that portfolio management will be properly and rationally applied in every organization. Politics and preconceptions can still mar decision making, resulting in underfunding of important infrastructure requirements.

That is why you should get out in front of any portfolio-management initiative under way at your company. Find out which vendor's portfolio-management analysis tools are being used. Go to that vendor's site and see what sort of best practices they promote along with their solutions. Get as involved as possible in the early stages of the initiative so you can see how investments are being benchmarked. That way, you will be better equipped to position your most important budget items in the most positive possible light.

Not every IT department is fully adopting a portfolio-management strategy. At those organizations where it takes hold, however, it will be the primary filter through which all spending is viewed. Network managers who ignore such a major shift in budget decision making do so at their own peril.

Liebmann is an independent consultant specializing in the application of networking technologies to strategic business challenges. Send comments for publication to liebmann@comnews.com.