 |
 |
 |
 |
| |
|||||
|
|
|
|
|
||||
A New Era of Enterprise Portfolio Management Elaine Goyette and Bruce Lamar What is enterprise portfolio management anyway? This question can best be answered by considering three epochs in the evolution of investment management procedures in public- and private-sector organizations. The first, used during the past several decades, is project-level management. Users developed control methods and procedures around their projects. These procedures helped decision-makers select the individual projects and initiatives that were most closely linked with the strategic direction of their organizations. Once selected, project management and control procedures were put in place to ensure that a funded project would achieve its intended objectives within cost, schedule, technical, and performance baselines. When organizations saw the need for a broader approach, the second epoch began and evolved in the 1990s. This was the portfolio management approach to investment decision-making. Here, the focus was at a more aggregate level (rather than at the individual project level). A cornerstone of the portfolio management approach is the "select-control-evaluate" paradigm put forward by the General Accounting Office in 1997 (GAO/AIMD-10.1.13). This framework helps decision-makers achieve organizational goals and objectives by identifying, selecting, financing, and monitoring the most appropriate mix of projects and initiatives. The third epoch—enterprise portfolio management—is evolving today. An enterprise involves an amalgamation of interdependent resources (including people, processes, facilities, and technologies) organized to obtain a strategic advantage in support of mission or business objectives. Thus, by its very nature, enterprise investment management is larger in scope and more complex than either portfolio management or project management. This new paradigm recognizes that at the enterprise level, decision-makers must consider not only the investment options under their control, but also take into account how their alternatives affect, and are affected by, other components of the enterprise. To some extent, this view was also present in the earlier epochs. However, in enterprise portfolio management, the interactive nature of the decision environment is paramount. Supply Chain Management Example To illustrate, consider the enterprise-level investment decisions associated with a supply chain management system of a major manufacturer. Contained within this system are a series of organizational units, commonly referred to as "nodes," that perform specific functions. One such node in this supply chain system would be the parts fabrication unit of the firm. The manager of this node looks to higher-level nodes to define the infrastructure and set strategic direction. In addition, the fabrication node manager uses subordinate nodes, such as operations nodes and evaluation and testing nodes, to provide capabilities that will enable the achievement of the company's strategic goals. At the same time, the fabrication node needs to be aligned with its peer nodes. For instance, the material handling component at the parts fabrication node should be synchronized with related components at the nodes supplying raw materials to the fabrication node. Similarly, the packaging and other outputs developed at the fabrication node should be coordinated with the warehousing or distribution nodes supplied by the fabrication node. What happens at one node affects many others. Supporting Enterprise Architecture Clearly, there are many investment challenges—as well as opportunities—"up," "down," and "across" the decision environment of an enterprise. To sort through the complex interrelationships present in any enterprise, a concise representation of the nodes that make up the enterprise and the relationships among these nodes is needed. In other words, an "enterprise architecture" is required. This was the impetus behind recent revisions in OMB guidelines for federal agencies. Specifically, OMB Circular A-130, which provides planning principles for information systems and technologies, was revised in November 20, 2000; and OMB Circular A-11, which describes the requirements for the preparation and submission of budget estimates for federal agencies, was revised in May 2003. Together, these documents mandate that federal agencies build their capital planning and investment control process from the agency's current enterprise architecture and its transition plan for migrating from the current architecture to the future architecture. Research at MITRE MITRE's Center for Enterprise Modernization is funding an internal research project that addresses enterprise portfolio management issues. The emphasis of this research is to develop and integrate analytically-based methods, tools, and procedures that best support investment decision-making across the lifecycle and is consistent with the enterprise architecture. Active enterprise-level portfolio management can be a complex undertaking, with the level of complexity based on the scale of the enterprise considered. It is a process that requires significant up-front planning to ensure all foundation elements and key issues are addressed (see sidebar). It also is a process that has been a key success factor in ensuring effective resource allocation for development of capabilities critical to the goals of many government organizations. While much of the focus in the public sector has been on information technology (IT) investments, this management process has applicability to other types of investments, such as human capital and non-IT assets. Therefore, continued application of the investment management process will go hand-in-hand with the modernization initiatives of our sponsors, both now and in the future.
|
|||||
| For more information, please contact Elaine Goyette or Bruce Lamar using the employee directory. Page last updated: November 12, 2003 | Top of page |
|||||
Solutions That Make a Difference.® |
|
|
Download this issue [617KB]