Enterprise Portfolio Management -Thoughts and Insights

Woke up early this morning to the buzzing in my head…An idea that Options Theory as currently applied within more sophisticated enterprises for IT Investment was off the mark.  I’d spent the past year going through application of approaches such as Black-Sholes which for external markets tracks well.  However, for IT Investments there is something slightly askew.  That uncomfortable feeling of what and how finally popped in my head this morning.

Several things about the standard approach to Investment Markets Options Theory rely upon market forces to determine value.  However, within the Enterprise Ecosystem value is not measured by standard economics of buyer/seller in the traditional sense.  Arbitrage in the market does not apply in the traditional sense.  The investment is either exercised for its perceived utility or not; typically based and prioritized upon return on investment of the asset (in the broadest sense of the word asset).   In corporations however there are two economic systems at play:

  • External Ecosystem, the one in which the enterprise participates in.  Here the economics that investment professionals typically discuss and where options theory approaches such as Black-Scholes apply.  One can apply hedging as in Black-Scholes to capture the best Risk/Reward.  Within this ecosystem market dynamics have investments flow between investment vehicles based upon perceived future value.  With items other than perishable commodities the perceived value is not always inline with standard accounting practices.  When valuation of corporations occur Intangible assets such as “Customer Good Will” and “Intellectual Property” are used as a filler to account for the difference between residual value of physical assets in general accounting practices  (i.e., cadaver accounting) and investment accounting.
  • Internal Ecosystem, a set of economics that is governed more strongly by general accounting practices; costs and benefits must somehow be in balance.  However, a semi-closed system is assumed within such an economic system.  That assumption is later adjusted each quarter or year by increasing an Intangible Asset valuation on the books.  This ecosystem is driven by several factors: Asset Depreciation and Utility Value of Assets deployed.

These two economic systems interact through several interfaces of which not all are visible or easily measurable.  Monetary funds go into the Internal Ecosystem from the External Ecosystem on the assumption that these funds will be used to purchase assets and through utilization of these assets return more or increase in value the enterprise.  This in the external system takes the form of stock price or dividends.   Which in many US based firms now provides a stronger drive to the internal dynamics of a publically held corporation.

However, the value of individual assets inside a corporation is not as simple as those in the external ecosystem.  Inside the corporation assets are combined with a purpose in mind, to create a utility value.  While the individual assets are accounted for in general accounting practices the utility value of a configuration of assets is typically not.

An example; a machine is purchased, a process developed to use it and others to create a product or service, supplies/consumables are also purchased, and people trained to create and sell the product / service.  This creates some value if the product or service is consumed by the external ecosystem in exchange for revenue.   Ten years later the internal assets have been depreciated in value to zero, yet the enterprise is still getting utility value from this configuration of assets.  One year later a competitor’s product / service attracts enough consumers to make the enterprise’s offering unprofitable.  The assets once providing utility value, though zero accounting value through depreciation, are now in negative territory.  Now we’ll complicate things.  One of the assets in the configuration was a computer.  It can be reassigned to do other tasks thus extending its utility value in another configuration.

Thus the value of assets in an internal ecosystem’s portfolio needs to be managed differently.  Those management practices need to more strongly account for internal utility value that it contributes within an hierarchy of abstract portfolios that support an enterprise’s participation in the various value streams in which it is a member.  That insight realized this morning has been what has been driving me to revise the portfolio management practices I had defined for previous employers –though better than none– seem not adequate for the task.   With that insight in mind developing the economic methods –for what I’ve called Level 5 Dynamic Management that are closer aligned to how an enterprise operates internally– appears more attainable and palatable than just inserting a standard Black-Scholes model.

Internet of Things

During yesterday’s drive home and this morning’s drive into work I considered the latest Hype-cycle meme “IoT”, the Internet of Things.  That magical connection of every device to…  While we’ve had IoT in many forms prior consider X10 which many a RadioShack customer “wired” their house with, then PowerBus, etc.  Then as microcomputers truly became ubiquitous, home started getting wired for TCP/IP and later WiFi.  Now the amount of Wifi Hotspots around businesses and homes is staggering.  At an apartment a few years ago I was amazed to find no less than twenty-three private networks within range, no doubt all connecting various devices beyond a PC and providing services such as video and audio media.

Now as the term “IoT” comes into play I wonder if this and the “app” crazy has created the ecosystem that is the digital equivalent of what we all complain about airlines and hotels these days?  a la carte pricing and thereby cause the consumer and business to be the systems integrator.  The question become does “IoT”, “App Stores” and consumption economics become the perfect storm to devalue Information Technology and the complexity involved in integration.

I as this questions as more business executives question the value of enterprise and other technology architectures while in the same breath can’t understand why the pieces don’t fit together easily in just a flew clicks.  I wonder if that CxO’s car stops dead in the desert out of range of a cell tower will her or she be lost forever, given the likely inability to fix the technology they’ve asked for and become dependent upon.   About to decades ago and reprised the thought a few years ago, that one day businesses are likely to fail due to technology failure.  As this decade reaches the halfway point, I see that risk increasing beyond the obvious threat of hackers.

Parallel tracks: Skills transfer at work for colleagues and Structure in Threes book

Started a skills transfer series at work yesterday “Methods in Minutes” with the idea of creating short presentations on Enterprise/Business Architecture and Management Consulting techniques I’ve collected or created over the years.  Originally, I was going to collate about a dozen or so into a single methodology presentation.  However, after coming to the insight that people’s attention span today has gotten much shorter in direct correlation to the time horizon on which they work –that is many colleagues are focusing on getting just today’s stuff done or at best what’s on deck for the week– decided to just create a catalog of methods at their finger tips.  I’ll assemble them later into a IT Management Methodology later as the goal is to help colleagues and team-mate be productive NOW.

Sent out first method draft along with question “would this be useful” to the WW Architecture Community at Microsoft.  Got a resounding “yes” as well as an excellent suggestion to post these in a share or Office365 site rather than distribute via DLs or Yammer.  Looks to be a busy next year as I create and fill the catalog.


Modern IT Portfolio Management: Risk Modeling

Applied R&D for rating interdependency risk almost complete this morning.  Models will work well from my reengineering project at Microsoft.  In the DSM model I adapted NASA’s model that uses interdependency and technology maturity as primary factors.  Multiplying the scales for each factor yields isographic map of the range of risk which is translated back to a simple scalar range for presentation.


Interdependency Risk DSM Model

DSM Risk Calculation for IT Portfolio Management

Completed POC using Design Structure Matrix for determining component risks in a system.  This example is more technology based than using process, organization, or composite (aka services) components.  However, the technique works well and will be added to IT Portfolio Management attributes

Component Risk from interface type DSM


Today’s Applied Research Agenda

Today’s agenda: R&D around Capacity Management for Services and Processes.  My presentation on metrics and measurement for processes went well, but I know risk and capacity management are a significant lack in this field.  Somehow everyone has gotten the opinion that Moore’s Law will bail them out…that hope is what the other engineering disciplines know now leads to unsustainability.  Received old book I ordered from Amazon Market [Computer Systems Performance Modeling, 1981 –Sauer]   that covered some of this in regards to computer systems.  Coupled with Meadows Limits to Growth (Systems Dynamics that Forrester introduced) I believe I can develop an approach to monitor, measure, and manage processes in more than a reactive way currently the industry norm.  While it will not likely be Nobel Prize winning stuff, I think it will help make Microsoft more competitive and responsive to customer needs     

Structure in Threes IT Lifecycle Management: EOL

Spent a few minutes during breakfast pondering some of the issues around IT Lifecycle Management.  Specifically the term End of Life (EOL).  IT community is still a little behind other engineering disciplines in its understanding and application of this concept.  Take S/W for instance.  There EOL typically means either no more support for the product or that the product has been withdrawn from the market.  That is on the vendor’s side of the equation.  On the customer side EOL has other implications.  Does the application still operate and provide utility?  If so EOL is really a transition from vendor support to self-service;  think out of warranty for your car.  A third level of consequence are the customers of IT, the Line of Business that use the service based upon the application.  Does EOL of the application mean EOL for the service or does it mean a mad scramble to replace the utility by some other means.


This brings me back to the nuances I am exploring in Portfolio Management.  Currently one of the failings of IT Portfolio Management has been the lack of linkage between service utility and application serviceability in managing a portfolio.  Too often have a seen that second and third order consequences were not considered during portfolio decisions.  Y2K issues a decade ago are just one ripple effect of short term decision making.  The hierarchical model of portfolio I’ve been prototyping and testing appears to address this issue.  I’ve started to look at applying via usage strategies of Active Directory which was what I had considered when we came up with the conceptual design.  Only a decade or so behind schedule.  However, Cloud technologies may make implementations easier and harder now.  IT Financial Management approaches are on an upswing again so the timing might be right