Moshav Bnei Zion P.O.Box 151, 60910 Israel Tel. 972-9-7444474 Fax.

972-97442444

:SUMMARY OF ROUND TABLE REVIEW

Portfolio Management

February 2007

Moderator of the review: Galit Fein

 Moshav Bnei Zion P.O.Box 151, 60910 Israel Tel. 972-9-7444474 Fax. 972-97442444

Participants: Participating in the review were CIOs, PMO managers and project
managers representing organizations from various sectors.

From everything that was said at the review, it transpires that the role of the Project
Management Office (PMO) in the various organizations is still not properly defined
and is consequently undergoing numerous changes. At present, the functions of the
PMO in the various organizations are adapted to suit the requirements of each
individual organization. These needs, moreover, change in the course of time. A good
Projects Management Office should have sufficient flexibility to revise its job
definition in accordance with the changes taking place around it both inside and
outside or the organization.

Object of the discussion: was to hear what participants had to say on the subject of
best practises for the management of the organizational portfolio, and especially to
provide answers to some questions: Where should the PMO office be located? What is
the responsibility of the PMO office? How are IT investments planned and
prioritized? Is there a rule of thumb for distributing the budget among projects? What
is the procedure for initiating a project in the investment portfolio? Is project
performance followed up? And, in conclusion, what tools are in use by the PMO?

Salient points arising from the discussion:

Where is the PMO office located? A typical example of a PMO office: a PMO
manager, 3 customer managers (subordinate to the CIO), being IT employees or
employees of a certain LOB, and responsible for spotting and understanding the
customer’s needs, such as: what is his principal sore point? What system can be
brought into play to solve the problem? There are also 3 planning and control
managers who are responsible for budget planning, and who report to the Vice
President, and an outside consultant.

A process of portfolio management in the organization is generally created following

an IT initiative seeking to measure its own activity and start managing itself as a
profit and loss unit. The organization is not usually involved in the decision and
would actually prefer not to host an orderly process of maximization and prioritization
of investments, so that the stronger elements can continue to easily obtain whatever
they wish.

SMB companies do not usually have a PMO office, and the CIO is therefore the
person in charge of planning and managing projects in the organization. Requests by
customers in companies of this type are limited, and in most cases it is the IT that
makes requests of the customers and explains what is needed. It is important to note
that since the IT is on a small scale, it is able to maintain quick response time while
being adaptable to organizational changes; and despite the dearth of tools and
methodology for the project and portfolio management, no special need is
experienced for a PMO office.
 Moshav Bnei Zion P.O.Box 151, 60910 Israel Tel. 972-9-7444474 Fax. 972-97442444

Budget management also comes under the purview of the CIO and goes through the
management’s approval process. One way of trying to secure most of the required
projects is by presenting management with a greater number of projects than is
necessary.

Organizations not having a PMO office and a structured methodology for portfolio
management complain of the absence of an annual work plan, of projects being
undertaken in accordance with ad hoc pressures, and that the bulk of the IT budget is
designated for maintaining the extant.

√ What is the responsibility of the PMO office? The organizational PMO is

responsible for building the annual work plan together with the production teams.
The challenge in an annual work plan is to create a mix of projects that the
appropriate for the organization while making optimal use of limited resources in
order to obtain maximum commercial profit. Portfolio management is a process of
decision making and prioritization of projects in a world in which there is always a
surplus of requests, generating a constant need to strike a balance between limited
resources, technological capabilities, commercial needs and a changing business
environment, while at the same time maximizing returns on the investments and
minimizing risks.

√ How are the planning and prioritization of IT investments implemented?

Projects may be classified into several categories, such as: strategic, mandatory, ROI
based and infrastructure related in accordance with the company’s objects. Next, it is
a good idea to combine a number of initiatives into a single major project designed to
provide a response to similar commercial objectives. Projects are selected and
prioritized within the categories by striking a balance between costs and risks of the
investments. A small amount of money should also be set aside for routine needs,
while aspiring to reduce the amount from one year to the next.

It is important to co-opt users into the decision making process. Prior to reaching
decisions, requests and priorities should be collected from the users. In creating the
work plan, it is important to relate to requests and orders of priority as presented by
the users and the LOB managers, subdivided into quarterly periods. Once next year’s
work plan is ready, a move should be initiated to present it to the organization’s
managers in order to obtain the go-ahead for implementation, responsibility and the
planning of the requisite resources. The decision as regards the final project mix is
taken by the PMO together with the divisional managers.

In order to enable high flexibility of a PMO on an annual level of resource planning, it

is wise to make use of external employees of outsourcing suppliers in addition to the
basic nucleus of company employees, while constantly rationalizing the organization.

In instances in which the IT unit is not critical to the organization or, alternatively,
customers are not exerting massive pressure on it, struggles do not take place over
each and every resource, and the IT makes its own order of priorities. A number of
organizations noted the difficulty in preparing maintenance projects for a work plan.
 Moshav Bnei Zion P.O.Box 151, 60910 Israel Tel. 972-9-7444474 Fax. 972-97442444

In a long term work plan, the organization’s goals are examined, looking at where it is
aiming to arrive, and what systems will be needed; and the work plan is extrapolated
from these factors. Once routine maintenance is subtracted from each branch, the
branches receive an investment budget in a ratio similar to the preceding year, giving
rise to a problem of staff mobility. The mobility problem is also an upshot of the
fixed format of existing teams.

√ Are there any rules of thumb in the distribution of the budget between various
projects? Some 50% of the IT budget goes to regular upgrades. Many organizations
try to replace equipment once every three years (by acquisition rather than leasing), in
order to reduce maintenance costs. Equipment that is three years old is transferred to
locations with high amortization. A number of organizations stated that after
collecting needs and requests for projects, they proceed to distribute resources on a
30% - 70% basis among investments and routine maintenance. Most spending is
directed towards personnel (an example of budgetary distribution in another
organization was: 40% to the core IT systems, 50% to projects and 10% to routine
developments).

√ What is the procedure for initiating a project in the investment portfolio? The
PMO managers stressed the importance of creating an initiatives document to be filled
out by the commercial managers before a project request is made. The initiatives
document includes the definition of the project, outlining its advantages for the
organization as mirrored by the user. Filling out this form calls for long term thinking
and a definition of commitment on the part of the user. It therefore attests to a genuine
need for the project. Its should be borne in mind that 3 person years are invested in
an average IT project, and the IT resource is a critical resource for the organization,
and is usually in deficit, and therefore it is important not to allow the organization
managers to submit requests for non-essential projects.

√ Is project implementation followed up? The participants noted the importance of

resource management and automated reporting on work hours per project. This
process enables organizations to efficiently keep track of actual performances in
accordance with the various types of resources and also lets them know the actual
status of the projects. IT employees view their attendance data and hours
segmentation and correct them as needed. IT is thus able to make cross sections of
types of work in accordance with the quantity of hours invested in handling incidents,
maintenance, development and so forth. Reporting of hours by types of task should
preferably take place at the end of each day. Hours reporting on once a week basis has
virtually no significance since it is very difficult to recall the division of the work
after several days. Orderly reporting of hours enables effective follow up of planning
versus actually performance.

With the aid of the Dashboard, senior managers should be called on to get involved in
finding a solution for problematic projects, once a month. Frequently, a problem in a
project that is not necessarily IT-related is solved by the intervention of a senior
manager who frees up resources and moves things along more easily.
 Moshav Bnei Zion P.O.Box 151, 60910 Israel Tel. 972-9-7444474 Fax. 972-97442444

Major companies recommend approaching the organization’s customers and asking

their opinion on this or that project via the internal system. It is frequently customers
who serve initial warning as regards planning deficiencies and failures. Generally
speaking, it would seem that the most effective index of progression of the project is
the customer satisfaction index throughout the lifetime of the project. It is the
customer who knows, before anyone else, whether something in the project is not
working well.

√ What tools are in use with the PMO? Project planning and budget management
are usually managed with the aid of an Excel spreadsheet, and are presented to
management by means of PPT presentations. The participants noted the problematic
nature of managing requests by means of Excel files which can sometimes crash and
be erased. Requests management in some organizations takes place with the aid of a
special Test Director application. Approved projects are managed with the aid of the
MS Project or Project Server. Hours reporting and follow up of projects is managed
with the aid of a Project server, Project Server with SharePoint, Workforce system and
self developed systems.

In one organization, regularized planning procedures commence with the internal

collection of needs in IT with the aid of Action Base for the management of routine
tasks.

√ Tip: how are the risks of the project calculated?

In order to choose information systems projects that are to be included in the

investment portfolio, the commercial risks existing in the various areas of activity
should be examined. Projects constituting preventative measures for the hedging of
such risks should be award first execution priority. The following is an outline
detailing the method of determining the risks of each area of activity when estimating
the risk for each area of activity:

• Mapping of the risks for areas and domains of activity, the description thereof
and an examination of the significance of the influence of each risk.
• Assessment of the damage expected to accrue in each risk graded 1- 10 (1
being the lowest risk).
• Assessment of the probability of damages coming about in grades 1 to 5 (1
being the lowest probability).
• Calculation of exposure in every risk factor by multiplying the parameter of
severity of the damage by the parameter representing the probability of its
occurrence.
• For each risk component, a description of the steps that should be taken to
hedge or reduce the damage:

√ Hedging – steps to reduce the probability of the damage taking place

√ Monitoring – control and follow up
√ Acceptance – no steps taken whatsoever
 Moshav Bnei Zion P.O.Box 151, 60910 Israel Tel. 972-9-7444474 Fax. 972-97442444

• A calculation of the cost of measures of reducing exposure.

• Grading of the new probability of the occurrence of the event, following

steps taken to reduce that probability

• Calculation of the residual exposure in each of the risk factors, by

multiplying the parameter representing the reduced probability of
eventuation of the damage by the parameter representing the seriousness of
the damage.

• Summation of the exposures – the following is the exposure of the doubt

• Calculation of the overall grade by means of the following formula:

100-(a*2/ b)

Where: a – overall exposure of areas of activity

b – number of risk components

TABLE OF RISKS

The following is Bezeq’s existing table of risk in classification in accordance with

areas and domains of activity:

Name of risk Description Significance Damage

Activity area Activity domain

In order to reduce the risks inhering in the current situation, a number of preventative
measures must be adopted. The following are the steps that can be taken at reasonable cost
and time:

Name Damage Probabilit Exposur Preventative Reduced Reduced

of risk y e measures probabilit exposure
y
Activity Activity domain
area

The next step is to calculate:

√ Total cost of exposure reduction

√ Grade following exposure reduction
√ Grade prior to exposure reduction