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E X E C U T I V E
B R I E F
IT Project and Portfolio Management and the Application Li fe C ycl e: Understandi ng the Market and Enabling IT/Business Coordination
Adapted from Worldwide IT Project and Portfolio Management 2005–2009 Forecast by Melinda Ballou, Melissa Webster, Stephen Hendrick, Evan Quinn, and Kathleen E. Hendrick (IDC #34221) and Establishing IT Governance and IT Portfolio Management for Business Adaptability by Melinda Ballou and Stephen Elliot (IDC #34670)
Driven by the pressures of a global economy, offshoring and outsourcing, regulatory compliance, and the rapid pace of technology change, Global 2000 organizations are striving to gain competitive advantage and efficiencies of scale through better management and prioritization of their information technology (IT) projects and programs. Adaptability of software initiatives to these kinds of dynamic pressures enables business success, and market trends increasingly demonstrate the evolving close connections between application life-cycle management (ALM) automated tools (such as software change and configuration management, testing, and requirements) and IT project and portfolio management (ITPPM). This has been exemplified over the past 24 to 36 months by multiple acquisitions of ITPPM tool vendors by ALM vendors. Yet automated technology alone is insufficient. The primary obstacle to success for more effective resource, project, and program portfolio management is the human and cultural barrier. People are extremely reluctant to cede control and authority over their resources and existing project "fiefdoms." Even where organizations have bought into making the transition at all three major levels — grassroots, middle management, and executive management — behavioral change to establish more consistent approaches to project, program, and resource management as well as effective portfolio prioritization is extremely challenging. It is hard to get staffs to shift their existing processes. Human beings are innately wired more for consistency than for change, particularly when they are wedded to existing job patterns. Moreover, most organizations experience varying degrees of opposition because of political issues. Therefore, it is vital to couple technology implementation with effective organizational and process strategies to enable successful adoption and implementation of ITPPM systems and to improve and leverage existing ALM tools and practices by incorporating greater discipline and rigor. The value of coordination between ALM and ITPPM tools includes the ability to incorporate quantitative data (such as speed to address key defects and changes) with qualitative analysis to better assess existing resource and project/program success for current and future IT initiatives.
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This Executive Brief provides an in-depth analysis of the ITPPM market, its projected growth, as well as key drivers and synergies between ITPPM and ALM. It defines ITPPM and discusses functional capabilities encompassed by the suite of projects included in this market category. It also discusses the relationship between ITPPM and IT asset portfolio management, analyzes ITPPM opportunities and challenges, and provides a future outlook.
IT Project and Portfolio Management: Market Definition
Project and portfolio management applications are used for defining, estimating, tracking, and optimizing the tasks and resources required to plan and complete a project as well as to manage the portfolio of an enterprise's body of projects, including "what if" analysis on proposed projects. PPM applications track resources (usually materials and labor) by project, analyze resource constraints and project timelines, and present schedule- and resource-based analytics. ITPPM represents a cross-industry usage of PPM technologies meant to augment the effectiveness of IT departments to enable more adaptive business approaches. ITPPM tools facilitate joint business/IT planning. These products provide portfolio visibility into IT projects, programs, and resource allocations and costs in conjunction with expected business value to enable effective prioritization. Product functionality encompasses a suite of primary capabilities that include project, program, resource, portfolio, process, demand, workflow, and cost/budgetary management for IT. The ITPPM market includes software revenue from IT end-user organizations and consultancies/outsourcers that use ITPPM tools to manage the portfolio of IT projects and IT programs. These tools represent a subset of the overall product, project, and portfolio management tools market that IDC sizes and forecasts. The objectives of ITPPM tools are as follows: • Enablement of adaptive, complex IT/business decision making. The increasing complexity of coordinating business and IT environments is adding dimensionality to potential projects as well as increasing the number of competing projects and programs that IT organizations must evaluate. At the same time, competitive pressures demand quick responses on the part of businesses that are highly dependent on IT software projects in order to be successful. The costs of lack of visibility into existing projects, programs, and resources and the lack of understanding of resource redeployment are visceral. ITPPM tools are designed to solve complex multidimensional problems and seek optimized solutions based on user-supplied data such as business needs with associated value and risk, tasks, policy, and rules. Alignment of business goals and IT goals. ITPPM tools, by virtue of the discovery and analysis process they enable, facilitate collaboration about and coalescing of objectives, policies, rules, and processes between IT and business staff. Important facets of this unification are information reconciliation, sharing, and alignment that are promoted by ITPPM tools. This alignment also incorporates the ability to view project and program portfolios in the context of overall competitive goals. Understanding the IT portfolio balance between "lights on" projects, which make up the vast majority of IT initiatives, and riskier projects that facilitate expansion and transformation (key in highly dynamic markets) is a key benefit of the IT portfolio approach. This enables companies to cut waste and focus resources on areas of greatest organizational and competitive need.
Support for IT governance. Regulatory and board-mandated compliance requirements demand the ability to document and explain corporate actions. The role of ITPPM in decision making and optimization makes it an ideal and necessary part of a comprehensive IT governance (ITG) solution. IT governance encompasses coordination between the IT project portfolio and the IT asset portfolio (the systems and infrastructure in which and on which IT software will ultimately reside as well as the resulting application portfolio created when IT development projects are completed). ITG also encompasses IT program coordination for regulatory compliance. Managing outsourcing. The need to better manage outsourced and offshore resources in conjunction with internal staff is a key driver for ITPPM. Resource and project management challenges alone are daunting in that context. In addition, with more specialized ALM vendors in this space, the ability to drive qualitative analysis based on quantitative metrics (e.g., testing and change management responsiveness) enables greater management visibility into experience levels and staff capabilities. This can improve decision making on the part of IT management with regard to internal and external sourcing.
ITPPM tools are a key aspect of an overall IT life-cycle management solution (ITLM). ITLM encompasses all IT activities that are associated with the decision making, development (requirements, planning, development, change management and testing, deployment, and maintenance), and operation (monitoring and management) of IT assets. Coordination of PPM with application development (AD) life-cycle tools enables users to leverage quantitative data locked up in testing and change management to make qualitative assessments about project and program success. It also enables the proactive prioritization of highly constrained internal and outsourced resources. Consequently, ITPPM is key in supporting the decision making and oversight that enables an organization to make the right, most adaptive choices regarding the development of IT applications and assets.
The Impetus for IT Project and Portfolio Management
An upsurge in the need to manage groups of related projects as "programs" (beginning with Y2K), as well as the need to more tightly manage highly distributed resources and development environments, led to the evolution of combined suites of project portfolio management tools for IT use. These incorporated project, program, resource, portfolio, and process management, typically, and enterprise PM vendors dominated the space initially by expanding their capabilities beyond PM to include portfolio management. The market has shifted and become more complex over the past three years, bringing in an eclectic mix of competitors to target this arena, from ALM to niche portfolio management vendors to ERP vendors. In addition, some vendors in the professional service automation (PSA) market with particularly strong resource management features turned toward ITPPM when the PSA market lost its footing in the early 2000s and/or have been acquired.
The IT user segment became an early adopter in the portfolio management market. Already prepped to use better practices as a result of existing AD life-cycle approaches, the IT slice of this arena has been readier to incorporate a project portfolio strategy. This trend was also a direct result of highly constrained internal resources for IT and pressure from outsourcing to both improve internal approaches and better manage the combined internal and offshored resource pools. Regulatory compliance pressures also supported this push toward ITPPM (with program management needs) and helped provide funding and executive buy-in. In addition, the following events have led to market growth for ITPPM: • The mushrooming complexity of today's infrastructure-centric application development, making it far more difficult to optimize development and maintenance with automated tools Intense competitive pressure in a global market, leading to the requirement of business management to better align IT with the needs of the organization and to formalize planning and analysis activities Recent regulatory changes that emphasize compliance and auditing that have a direct impact on IT departments The need for metrics and assessment that can directly benefit from quantitative data available in ALM (e.g., testing, software change management, and effective requirements mapping to prioritization strategies) as well as the need to better prioritize highly constrained human and other resources for IT projects and programs
User demands have met with a swift response from vendors. In the span of just two short years, most of the leaders in the ALM market have rushed to provide an ITPPM solution. These efforts represent a major commitment from leading ALM vendors to fill an obvious gap in their overall ITLM suites. Additional vendors in the space are targeting ITPPM as part of their overall strategies (e.g., ERP, niche portfolio management, and established PPM vendors). As stated earlier, established enterprise project management players have largely dominated ITPPM so far; they account for 4 of the top 5 ITPPM vendors for revenue share. This is in part due to the end-user emphasis that has been placed in the past on project capabilities as part of IT portfolio management and in part to the fact that several of these vendors came earlier to the market and built up their suites of capabilities sooner. However, the rapid movement forward of some vendors indicates the ability of nimble players to dominate fairly quickly. Also, project management is becoming increasingly commoditized (although still a key capability) with regard to IT portfolio management. Therefore, we expect other vendors in the space to begin to dominate as well with related, differentiating capabilities. Niche IT portfolio management vendors continue to contribute significantly to market and product evolution. Some vendors push the envelope with regard to IT portfolio management capabilities and a "top down" approach. Vendors with strong portfolio management and basic project and resource management capabilities have created their own basic "suites" for ITPPM. Increasingly, IDC expects to see a hybridization for vendors in the ITPPM arena that will expand to target the broader PPM and product portfolio management over time as areas of strong growth (see Product, Project, and Portfolio Management: Convergence Is the 3PM Game, IDC #34392, November 2005).
Given the eclectic and dynamic nature of this market and diverse product strengths and capabilities, user decision making must be based on areas of greatest challenge and leverage core vendor strengths (e.g., resource, portfolio, project, financial, or HR planning). In addition, users should evaluate and select vendors with appropriate process experience and organizational strategies for making the transition to ITPPM and technology that can leverage synergistic process content for effective cultural adoption of the automated tools.
The Historical Growth of the IT Project and Portfolio Management Market
In 2004, the ITPPM market experienced strong growth of 16.7% to reach $402.9 million, up from $345.2 million in 2003.
Market Characteristics in the Future
IT life-cycle management is finally coming of age. The recent addition of ITPPM to the ITLM mix is welcome and frankly long overdue. Lack of coordination across the ALM tool suites with effective PPM has negatively impacted users for years. However, this doesn't mean that all of the heavy lifting needed to address ITLM requirements is now done. The core highlevel constructs necessary to build a relatively complete ITLM system include: • ITPPM capabilities. ITPPM is key due to its ability to provide proactive, adaptive decision making for the overall IT project and program portfolio, including a system of record and focal point for which projects are addressed by IT. In addition to project, process, and program management, this includes effective resource, demand management, costing, portfolio prioritization, and management and workflow. ITPPM primarily provides adaptive, proactive decision making and oversight for software development life cycle (SDLC) related to new software development and customization and/or maintenance of existing software assets. Application development. The classic software development life cycle is addressed here and consists of requirements, modeling, development, testing, and deployment. Core repositories and systems that support the life cycle for application development and maintenance include software configuration management (SCM) systems, automated software quality (ASQ) systems, and related tools and a build management system (BMS). Application management. When new applications are moved into production, their association with other applications and system resources becomes acutely important. Application monitoring and change management systems provide operational oversight of deployed applications. In addition, application portfolio management enables an analytic framework for creating application inventories in the asset portfolio and managing and prioritizing them. This enables future project planning that incorporates an understanding of existing applications to avoid redundant projects and leverage existing application assets.
Linkages to asset portfolio management. Although nascent, linkages between ITPPM and IT asset portfolio management tools are evolving (see Establishing IT Governance and IT Portfolio Management for Business Adaptability, IDC #34670, December 2005). Software resulting from IT projects will ultimately run on assets (e.g., systems, infrastructure) existing within the IT asset portfolio. They will belong to the application portfolio that sits within the asset portfolio, yet early coordination between IT developers and operational staff is typically poor or practically nonexistent in the ALM process. Coordination across ITPPM and asset portfolio management tools enables visibility into the dependencies and costs across both portfolios, enabling cost savings on the part of businesses and facilitating better up-front planning. Most major ITPPM vendors have announced strategies or are in the process of establishing an approach that coordinates ITPPM with IT asset management (ITAM). In addition to better coordination to meet service level agreements, another benefit will be the ability to better prioritize defects and determine when complex change requests actually need to become full-fledged projects. (Defects are often addressed haphazardly, which is costly in a variety of ways.) This does not mean that ITPPM becomes ITAM; it merely means that coordination across both areas is an important next step in the evolution of the market. (Most Global 2000 organizations are too immature from a process perspective to begin adopting this approach as yet.) IT governance incorporates an approach and tools that enable coordination across the IT and asset portfolios.
Forecast and Assumptions
The ITPPM market is undergoing rapid growth, and we expect this growth to continue for the next several years before this market approaches full potential, given the intense focus on ITPPM being expressed by large vendors and ongoing commitments from others. Achieving highly optimized, consistent, and reliable decision making for new IT activities — as well as maintaining existing IT application assets — demands ever more advanced ITPPM products and services.
The IT Project and Portfolio Management Market Forecast, 2004–2009
Worldwide The worldwide ITPPM market is expected to experience continuing growth with a compound annual growth rate (CAGR) over the forecast period of 14.9%. This continuing growth is due to the fact that virtually all of the leading vendors have just begun to address the needs of the ITPPM market. Therefore, we expect a significant amount of new functionality to be delivered over the next two years by all the leaders. At the same time, established software leaders are ramping up their ITPPM efforts, and all leading ITPPM vendors will be targeting the broader area of IT governance. Other major players will continue an existing ITPPM commitment during that time frame, thereby combining to bring a high level of confidence to our forecast. Growth in 2005 fell to 15.6% primarily as a result of the downward pricing pressure that accompanies overheated markets. Growth levels off for a time in 2006 and 2007 at 15.3% as existing vendors in the market grab all the low-hanging accounts. The increasing maturity of the market conspires to push growth down to 14.3% in 2008 and 14.2% in 2009. The result is ITPPM revenue of $808.1 million at the end of 2009, very strong growth given IDC's forecast for overall worldwide software revenue growth.
IT Project and Portfolio Management Challenges
There is no doubt that project and portfolio management, when practiced carefully, provide a framework for understanding IT issues and fostering sound decision making in coordination with the business — ideally. The challenge in getting the most out of ITPPM tools is to engage in a comprehensive discovery process that enables the identification and capture of key organizational data, rules, policy, and objectives and criteria for prioritization. Yet the greatest barriers to adoption for ITPPM are the cultural barriers. Global 2000 organizations can purchase the best technology, but getting staff to change their behavior and adopt tools that may wrest resource control from them and make them more accountable to management is problematic. Even where teams are highly motivated to make the change, it is hard to shift processes. Combining technology with effective organizational strategies (such as combined IT/business program management offices) and appropriate processes and establishing evangelism by upper management and grassroots marketing and incentives through successful piloting are also key. Users must evaluate process and organizational support from vendors to facilitate successful transitions to ITPPM tools adoption. In addition to incorporating effective process and organizational strategies, challenges for vendors include integration across ALM and ITPPM and other related product sets. Ambiguity is the enemy of sound ITPPM; a core challenge involves extracting the semantics for business policy related to risk, value, business expectations, and business granularity. While we expect ITPPM tools to become more adept at easing the process of capturing and codifying business policy and workflow capabilities are already strong from some vendors, there will always be a configuration exercise for using these tools that is left to the user. Internal politics and polarization are significant barriers in this context as well. Despite these challenges, the technology is well proven and increasingly necessary as IT organizations with highly constrained resources grow larger and must proactively address increasingly competitive markets, complex sourcing, and development technologies and other pressures.
IT's increasing role and stature within the enterprise are catalysts for much of the evolution the ITPPM market is experiencing. Some of the more recent evolutionary changes revolve around architecture, process, and infrastructure. ITPPM falls within the process category because of the order it can bring to the complexity associated with managing IT projects and decision making for IT portfolios. External factors related to compliance and IT governance are also shaping the recent demand for ITPPM. Demand should remain strong for ITPPM tools throughout our forecast period, and there is further strong market and product evolution that will occur as larger vendors deliver more complete ITLM solutions. Smaller vendors will continue to play a key role in product and market innovation, and differentiated ITPPM solutions will come into play in that context and as further consolidation occurs with additional acquisitions during the 2006–2009 time frame.
C O P Y R I G H T
N O T I C E
The analyst opinion, analysis, and research results presented in this IDC Executive Brief are drawn directly from the more detailed studies published in IDC Continuous Intelligence Services. Any IDC information that is to be used in advertising, press releases, or promotional materials requires prior written approval from IDC. Contact IDC Go-to-Market Services at firstname.lastname@example.org or the GMS information line at 508-988-7610 to request permission to quote or source IDC or for more information on IDC Executive Briefs. Visit www.idc.com to learn more about IDC subscription and consulting services or www.idc.com/gms to learn more about IDC Go-to-Market Services. Copyright 2006 IDC. Reproduction is forbidden unless authorized.