Faculty of Electrical Engineering, Mathematics & Computer Science Project Portfolio Valuation with Enterprise Architecture Anastasia Maria Krisnawati M.Sc. Thesis August 2015 Supervisors: Dr. Maria-Eugina Iacob Dr. Ir. Marten J. van Sinderen Dr. Lianne Bodenstaff MASTER THESIS PROJECT PORTFOLIO VALUATION WITH ENTERPRISE ARCHITECTURE ANASTASIA MARIA KRISNAWATI S1341677 [email protected] Master of Science in Business Information Technology University of Twente Enschede, The Netherlands Graduation committee Dr. Maria-Eugenia Iacob, University of Twente Dr. Ir. Marten J. van Sinderen, University of Twente Dr. Lianne Bodenstaff, BiZZdesign ii Acknowledgement Praise the Lord, for His blessing and giving me strength so that I can finish my master degree study at University of Twente. This thesis report is the result of my final project for Business Information Technology MSc program at University of Twente. The research has been conducted as a graduate internship assignment at BiZZdesign B.V. It has been a very challenging yet gives me valuable learning experience. Thus, I would like to acknowledge the people that support, encourage and contributed to this work. Firstly, I would like to give my gratitude to my supervisors from University of Twente: Ms. Maria Iacob and Mr. Marten van Sinderen for their guidance, critical feedback and helpful input so that I can finish my thesis. My sincere thanks also to Ms. Lianne Bodenstaff from BiZZdesign for her support, motivation, guidance and helpful input. I would like to pay my thanks to Mr. Dick Quartel for giving me the opportunity doing internship in BiZZdesign and give freedom of choosing my research topic. I would not have been able to finish this thesis graduation assignment without all of your support. Secondly, I would like to thank the Ministry of Communication and Information Technology of the Republic of Indonesia (MCIT), to give me the opportunity in pursuing my master study through its scholarship program. Thirdly, to all my friends in Enschede who color my life here. Retno, Rindia, Iwan and all PPIE members that make me feel like home in Enschede. Shu and Zaharah, who always motivate and make seven months doing internship and working on my thesis is enjoyable. Diego and Hao Ding, who often be my teammates. Special thanks to Uli, Anisah and Sanny for continuous support and motivation to finish this thesis and our study in Europe. Last but not least, I would like to thank my beloved family in Indonesia: Bapak, Mama, Siska and Rio for your everlasting support and never-ending prayers Enschede, August 2015 AM Krisnawati iii Executive Summary In the dynamic environment nowadays, organizations are required to transform continuously and steadily improve their current situation in order to achieve their goals. This transformation process could be accomplished by executing a number of projects periodically. As consequence, the ability to assess and prioritize the projects becomes highly important, which is achieved by performing a project portfolio valuation. However, this process in practice is often solely based on manager’s personal belief or by using minimal portfolio method. Therefore, this research aims at finding an approach to improve the decision making in project portfolio valuation. Enterprise Architecture (EA) is a comprehensive concept that illustrates the business process, application and infrastructure that could be used throughout the entire process, starting from the design, analysis and transformation phase of the organization. In this study, we explore the potential of using the information from EA for project portfolio valuation. Firstly, different project portfolio methods are evaluated based on specified criteria. The criteria consist of the possibility of using the information from EA and that the evaluation should be as comprehensive as possible; e.g. based on financial, non-financial and risk. EA-based Investment Portfolio method is introduced and designed based on Investment Portfolio method combine with the information that is obtained from the architecture. Three domains that are subjected to assessment are: business domain, technology and financial domain. For the first two domains, the factors from Information Economics method are adopted to score the projects. The scoring process is performed by combining the original IE score card and the information from EA. Subsequently, the result of the appraisal process is visualized in the bubble chart and used to specify the project prioritization. ArchiPharma case study is carried out to demonstrate the application of the proposed method. Semi-structured interviews with four research and business consultants are conducted to evaluate the ease of understanding, the applicability, and the usefulness of the proposed method. In conclusion, EA-based Investment Portfolio Method is able to facilitate the project portfolio valuation with a comprehensive justification. It also reveals the importance of collaboration between EA and PPM (Project Portfolio Management) in the practice. iv Table of Contents Acknowledgement ....................................................................................................................................... iii Executive Summary ...................................................................................................................................... iv Table of Contents .......................................................................................................................................... v List of Figures ............................................................................................................................................. viii List of Tables ................................................................................................................................................. x 1. Introduction .......................................................................................................................................... 1 1.1 Problem Statement ....................................................................................................................... 1 1.2 Research Goal ............................................................................................................................... 2 1.3 Research Objective and Questions ............................................................................................... 3 1.4 Research Methodology ................................................................................................................. 3 1.5 Structure of the Report ................................................................................................................. 5 2. Theoretical Background ........................................................................................................................ 6 2.1 Relation between EA and Portfolio Management ........................................................................ 6 2.2 Portfolio Management .................................................................................................................. 9 2.2.1 IT portfolio management step-by-step Methodology (Handler & Maizlish, 2005) ................... 11 2.2.2 Project Portfolio Management (PPM) framework by Rajegopal et al., (2007) .......................... 12 2.2.3 BiZZdesign Enterprise Portfolio Management (2014) ............................................................... 13 2.3 Enterprise Architecture ............................................................................................................... 14 2.3.1 The value of EA Framework and modeling ......................................................................... 17 2.3.2 ArchiMate Viewpoints ........................................................................................................ 19 2.4 Project Portfolio Valuation Methods .......................................................................................... 23 2.4.1 Financial Approaches ................................................................................................................. 23 2.4.2 Multi-criteria Approaches .......................................................................................................... 24 2.4.3. Portfolio Approaches ................................................................................................................ 27 2.4.4 Portfolio approaches evaluation ................................................................................................ 30 3. EA-Based Investment Portfolio Method ............................................................................................. 33 3.1 EA-based Investment Portfolio Method ..................................................................................... 33 3.2 Business domain assessment ...................................................................................................... 34 3.2.1 Strategy Match (SM) ........................................................................................................... 35 3.2.2 Competitive Advantage (CA) ...................................................................................................... 38 3.2.3 Management Information (MI) .................................................................................................. 39 v 3.2.4 Competitive Response (CR) ........................................................................................................ 42 3.2.5 Project or Organization Risk (OR) .............................................................................................. 43 3.3 Technology Domain Assessment: ..................................................................................................... 44 3.3.1 Strategic IS Architecture (SA) ..................................................................................................... 45 3.3.2 Definitional Uncertainty (DU) .................................................................................................... 47 3.3.3 Technical Uncertainty (TU) ........................................................................................................ 49 3.3.4 IS Infrastructure Risk (IR) ........................................................................................................... 56 3.4 Financial assessment ......................................................................................................................... 59 3.5Calculation contribution to Business and Technology domain ......................................................... 60 3.6 Project Visualization .......................................................................................................................... 61 3.7 Project Prioritization ......................................................................................................................... 63 3.8 Summary ........................................................................................................................................... 64 4. Demonstration ArchiPharma Case ...................................................................................................... 65 4.1 Case Study Description ............................................................................................................... 65 4.1.1 List of projects in Archipharma ........................................................................................... 66 4.1.2 Corporate Value of Archipharma ........................................................................................ 67 4.2 Business Domain Assessment ..................................................................................................... 68 4.2.1 Strategic Match (SM) .......................................................................................................... 68 4.2.2 Competitive Advantage (CA) ............................................................................................... 72 4.2.3 Management Information (MI) ........................................................................................... 75 4.2.4 Competitive Response (CR) ................................................................................................. 78 4.2.5 Project/Organization Risk (OR) ........................................................................................... 79 4.3 Technology Domain Assessment ................................................................................................ 82 4.3.1 Strategic IS Architecture (SA) ..................................................................................................... 82 4.3.2 Definitional Uncertainty (DU) ............................................................................................. 84 4.3.3 Technical Uncertainty (TU) ........................................................................................................ 87 4.3.4 IS Infrastructure Risk (IR) .................................................................................................... 90 4.4 Financial Consequence................................................................................................................ 93 4.5 Project prioritization ................................................................................................................... 94 4.6 Project Visualization .................................................................................................................... 97 4.7 Summary ................................................................................................................................... 100 5. Evaluation ......................................................................................................................................... 101 vi 5.1 Evaluation method and interview setting ................................................................................. 101 5.1.1 Interview setting ...................................................................................................................... 102 5.2 Result and analysis .......................................................................................................................... 103 5.3 Summary ......................................................................................................................................... 104 6. Conclusion ......................................................................................................................................... 107 6.1 Answers to Research Questions................................................................................................ 107 6.2 Research Contribution .................................................................................................................... 109 6.3 Research Limitations ....................................................................................................................... 110 6.4 Recommendations for Future Research ......................................................................................... 110 References ................................................................................................................................................ 112 Appendix 1 ................................................................................................................................................ 117 Information Economic’s Business Domain (Assessment) ..................................................................... 117 Information Economic’s Technology Domain (Assessment) ................................................................ 119 Appendix 2 ................................................................................................................................................ 122 Corporate Values .................................................................................................................................. 122 Appendix 3 ................................................................................................................................................ 124 Archiparma strategic value project’s script .......................................................................................... 124 Appendix 4 ................................................................................................................................................ 126 Archiparma Risk Analysis ...................................................................................................................... 126 Appendix 5 ................................................................................................................................................ 128 Interview’s Transcript ........................................................................................................................... 128 Appendix 6 ................................................................................................................................................ 135 Archipharma’s Architecture .................................................................................................................. 135 vii List of Figures Figure 1: Applications for enterprise architecture (Op’t Land et al., 2009). ................................................ 2 Figure 2: DSRM Process ................................................................................................................................ 5 Figure 3: Relationships between three disciplines (Iacob, Quartel, et al., 2012) ......................................... 7 Figure 4: The triangle between strategy management, project portfolio management and enterprise architecture(Bodenstaff et al., 2014) ............................................................................................................ 8 Figure 5 : The role of enterprise architecture (Op’t Land et al., 2009) ......................................................... 9 Figure 6 : EPM Cycle(Bodenstaff et al., 2014) ............................................................................................. 14 Figure 7: The Archimate Core Metamodel (Jonkers, van den Berg, Iacob, & Quartel, 2010) .................... 16 Figure 8: TOGAF-Archimate (Iacob & Jonkers, 2006) ................................................................................. 17 Figure 9: Motivation and implementation extension (Jonkers, Quartel, van Gils, & Franken, 2012) ....... 18 Figure 10: View Categories (Iacob, Jonkers, et al., 2012) ........................................................................... 20 Figure 11: Project Viewpoint ...................................................................................................................... 21 Figure 12: Business function viewpoint ...................................................................................................... 21 Figure 13: Architecture implementation and migration viewpoint ............................................................ 21 Figure 14: Requirements realization viewpoint .......................................................................................... 22 Figure 15: Layered viewpoint ...................................................................................................................... 22 Figure 16: Corporate Values(Parker et al., 1988)........................................................................................ 26 Figure 17: IE score card ............................................................................................................................... 26 Figure 18: SIESTA (Renkema & Berghout, 1997) ......................................................................................... 27 Figure 19: Investment Portfolio (Renkema & Berghout, 1997) .................................................................. 28 Figure 20 : Road Map(Mo A. Mahmood, 1999) .......................................................................................... 29 Figure 21: EA-based Investment Portfolio Method .................................................................................... 34 Figure 22: Business Domain Assessment Process ....................................................................................... 35 Figure 23: Business domain – SM’s process ............................................................................................... 36 Figure 24: EA-based SM's worksheet .......................................................................................................... 37 Figure 25: Architecture SM's scoring overview .......................................................................................... 38 Figure 26: Business domain – CA’s process ............................................................................................... 39 Figure 27: Business domain – MI’s process ................................................................................................ 40 Figure 28: EA-based MI's worksheet ........................................................................................................... 41 Figure 29: Architecture MI's scoring overview ........................................................................................... 42 Figure 30: Business domain – CR’s process ................................................................................................ 42 Figure 31: Business domain – OR’s process ................................................................................................ 43 Figure 32: Technology domain assessment ................................................................................................ 44 Figure 33: Technology domain – SA’s process ............................................................................................ 45 Figure 34: EA-based SA worksheet ............................................................................................................. 46 Figure 35: Archimetal SA's scoring overview .............................................................................................. 47 Figure 36: Technology domain – DU’s process ........................................................................................... 47 Figure 37: Archisurance Motivation View ................................................................................................... 48 Figure 38: EA-based DU Worksheet ............................................................................................................ 49 Figure 39: Technology domain – TU’s process............................................................................................ 50 Figure 40: EA-based TU worksheet ............................................................................................................. 53 viii Figure 41: IT competency capability overview ........................................................................................... 54 Figure 42: Hardware dependencies scoring overview ................................................................................ 54 Figure 43: Software dependencies scoring overview ................................................................................. 55 Figure 44: Application dependencies scoring overview ............................................................................. 55 Figure 45: Technology domain – IR’s process ............................................................................................. 56 Figure 46: EA-based IR worksheet .............................................................................................................. 57 Figure 47: Architecture IR's scoring overview ............................................................................................ 58 Figure 48: Example EA-based investment Portfolio visualization .............................................................. 61 Figure 49: Portfolio Map ............................................................................................................................. 62 Figure 50 : Archiparma’s Vision, Mission and Strategies ............................................................................ 69 Figure 51: Archipharma’s Strategy Implementation................................................................................... 69 Figure 52: Five force model(Porter, 2008) .................................................................................................. 72 Figure 53: Archipharma- Business Function view- ...................................................................................... 76 Figure 54: Archipharma Roadmap view ...................................................................................................... 82 Figure 55: Archipharma's Program Motivation View ................................................................................. 85 Figure 56 : Archipharma application realization view ................................................................................ 87 Figure 57: Archipharma Infrastructure Usage View ................................................................................... 87 Figure 58: Archipharma Capability View ..................................................................................................... 88 Figure 59: ArchiPharma's Layered Architecture ......................................................................................... 91 Figure 60: Archipharma's projects overview .............................................................................................. 98 Figure 61 : First Priority Project's Overview ................................................................................................ 99 Figure 62 : Second Prioritize Project's Overview ........................................................................................ 99 Figure 63 : Third Prioritize Project's Overview ......................................................................................... 100 ix List of Tables Table 1: Thesis structure ............................................................................................................................... 5 Table 2 : Comparative overview (Project Management Institute, 2006) ................................................... 10 Table 3: Viewpoint classified by goal and level of detail (Iacob, Jonkers, et al., 2012) .............................. 20 Table 4: Necessity Criteria(Kleersnijder & Berghout, 2012) ....................................................................... 29 Table 5: Business Criteria (Kleersnijder & Berghout, 2012) ........................................................................ 30 Table 6 : Portfolio methods analysis ........................................................................................................... 31 Table 7: Overview of “Create motivation and program architecture” activity .......................................... 36 Table 8: Overview of "strategic match scoring" activity ............................................................................. 37 Table 9: Overview of "competitive advantage scoring" activity ................................................................ 39 Table 10: Overview of "create business layer architecture" activity .......................................................... 40 Table 11: Overview of "management information scoring" activity .......................................................... 41 Table 12: Overview of "competitive response scoring" activity ................................................................. 43 Table 13: Overview of "organizational risk scoring" activity ...................................................................... 44 Table 14: Overview of “Create Roadmap Architecture” activity ................................................................ 45 Table 15: Overview of “Strategic IS Architecture Scoring” activity ............................................................ 46 Table 16: Overview of “Definitional Uncertainty Scoring” activity ............................................................. 48 Table 17: Overview of “Create capability, infrastructure and application architecture” activity .............. 50 Table 18: Overview of “Technical Uncertainty Scoring” activity ................................................................ 51 Table 19: Overview of “Create layered architecture” activity .................................................................... 56 Table 20: Overview of “IS infrastructure risk scoring” activity ................................................................... 57 Table 21: Example contribution to business and IT domain ....................................................................... 60 Table 22: Project prioritization ................................................................................................................... 63 Table 23: Archipharma Corporate Values ................................................................................................... 68 Table 24: Archipharma SM's score.............................................................................................................. 70 Table 25: Archipharma CA’s Score .............................................................................................................. 73 Table 26: Archipharma MI's score .............................................................................................................. 76 Table 27: Archipharma CR's score .............................................................................................................. 78 Table 28: Archipharma’s Risk Level matrix ................................................................................................. 80 Table 29: Archipharma risk profile mapping............................................................................................... 80 Table 30: Archipharma’s OR score ............................................................................................................. 80 Table 31: Archipharma SA's score .............................................................................................................. 83 Table 32: Archipharma DU's score ............................................................................................................. 85 Table 33: ArchipharmaTU's score ............................................................................................................... 89 Table 34: Archipharma’s IR score ............................................................................................................... 91 Table 35: Archiparma's project benefit ...................................................................................................... 93 Table 36: Archipharma's Project score ....................................................................................................... 95 Table 37: Archipharma's project range score ............................................................................................. 96 Table 38 : Evaluation criteria .................................................................................................................... 102 Table 39 : Interview session summary ...................................................................................................... 105 x