INFORMATION TECHNOLOGY PORTFOLIO MANAGEMENT PROCESS AND ANALYSIS

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INFORMATION TECHNOLOGY

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PORTFOLIO MANAGEMENT PROCESS AND ANALYSIS

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BACKGROUND

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In 2006, Toronto Hydro Information Technology & Services (“IT&S”) division

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commenced a new direction towards major transformation. Pre-2006, the focus was on

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amalgamation, consolidation and stabilization of technologies.

7 8 CONSOLIDATION CONSOLIDATION AMALGAMATION 2004-2005 2006-2009+ 1998–2000 2001–2003 MODERNIZATION STABILIZATION 9 10

During amalgamation, there were rapid changes to the organization structure, in

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technologies, and in handling of the Year 2000 (Y2K) associated risks. The focus was to

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maintain stability amidst the first wave of integration.

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Post amalgamation and during consolidation, the electricity industry faced a new

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challenge around the retail initiative and the technology changes required to prepare for

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market opening. Additionally, in late 2000 the business transformation initiative started

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with the implementation of the Enterprise Resource Planning (“ERP”) system “Ellipse”.

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The stabilization period was required to absorb the high rate of change introduced

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previously, with emphasis on operations and stabilization of systems and the integration

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of key systems like Supervisory Control And Data Acquisition (“SCADA”), Geographic

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Information System (“GIS”), and Distribution Management System (“DMS”).

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The Modernization period began with the appointment of a new Chief Information

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Officer (“CIO”) and the development of a new IT&S direction. This new direction

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included a number of initiatives aligned with THESL’s strategic objectives, a restated IT

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mandate, and an assessment of the risks of the current situation within the division.

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Key components of the modernization plan include rebuilding the leadership and

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invigorating the IT workforce, bringing transparency to resource utilization by separating

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Program Delivery from Application Support, and establishing distinct units responsible

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for IT Strategy & Governance, Security and Business Intelligence. In addition, a

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year program (2007-2009) to implement the best practices governance framework

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Control OBjectives for Information and related Technology (“COBIT”) has been

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initiated.

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One of the most critical COBIT components is Portfolio Management, a sub-process of

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the “Define Strategic IT Plan” process. Portfolio Management enables the translation of

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corporate strategy into specific programs and projects, and supports improved delivery of

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identified portfolio benefits. It closes the gap between strategy development and project

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delivery by translating strategy into an integrated portfolio that is managed for the

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delivery of objectives.

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The process of building this integrated portfolio provides an enterprise view of all the

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initiatives and eliminates decisions made separately by IT Managers and the business that

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lead to inefficiencies and ineffectiveness. This Portfolio Management approach

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facilitates strategic investment decision making, lays the foundation for the realization of

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benefits within and across business units, and is the basis for the capital expense budget

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plan for 2008-2010 IT-enabled initiatives. To deliver these programs, individual projects

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must be managed effectively to meet budget and time constraints. To this end, the

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portfolio management process was established in 2006, used for the 2007 capital expense

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planning and adhered to for 2008-2010 portfolio planning.

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PORTFOLIO MANAGEMENT PROCESS

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The implemented Portfolio Management process is supported by consistently prepared

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information in the form of Project Origination Documents (initial feasibility studies

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including ownership, scope, estimated costs and benefits, architectural comments, and

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preliminary assessments of inherent risk and value) and Business Cases (documentation

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of the background behind the financial figures, validation of original assumptions, and

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further elaboration and detail around the problem, proposed solution and considered

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options and recommendations).

8 9 Portfolio Management Group Business Units Business Management Executive Team Project Origination Template Project Origination Template Gate 1: Management Approval Gate 1: Management Approval Portfolio Analysis (verification, categorization, evaluation, selection and

portfolio balancing)

Portfolio Analysis (verification, categorization,

evaluation, selection and portfolio balancing) Gate 2: Authorization to develop Business Case Gate 2: Authorization to develop Business Case Business Case Business Case Quarterly Portfolio Analysis Quarterly Portfolio Analysis Gate 3: Authorization to initiate Project Gate 3: Authorization to initiate Project Project Delivery (initiation, planning, execution, monitoring, control and close-out)

Project Delivery (initiation, planning, execution, monitoring, control and close-out)

Gate 4: Confirm Successful Project Completion Gate 4: Confirm Successful Project Completion Benefits Reporting Benefits Reporting Quarterly Portfolio Rebalancing Quarterly Portfolio Rebalancing Portfolio Analysis (verification, categorization, evaluation, selection and

portfolio balancing)

Portfolio Analysis (verification, categorization,

evaluation, selection and portfolio balancing)

High Level Portfolio developed based on business and IT

strategy and requirements

High Level Portfolio developed based on business and IT strategy and requirements 10 11

Upon executive approval of the key IT&S programs related to the strategies identified in

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the corporate plan, these programs are further established and reinforced with a set of

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resourced projects. The result is the implementation of a particular component of

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THESL’s Business and IT&S strategy. Although the specific projects included in a

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program are a matter for review and agreement by the executive team, the need for the

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program itself is not disputed, as it is rooted in THESL’s strategy. With approval of the

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capital expense budget, the project portfolio is transitioned to the delivery cycle

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controlled by the Project Management Office of the IT&S Department. Monitoring of

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the Project Delivery plan provides the required data to assess status of on-going projects,

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and to rebalance the portfolio as necessary. This ensures that highly-rated, and strategic

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projects receive the required focus, and that any change to the proposed portfolio of

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projects is determined based on a pre-defined and agreed upon process.

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At project conclusion, and after a sufficient amount of time has passed for the benefits to

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be realized, the sponsors of each project are required to report on the benefits captured.

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This information is used to update the portfolio financial information to complete the

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portfolio analytical cycle.

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PORTFOLIO AND PROJECT CLASSIFICATION

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The analysis review allows the categorization of the capital project investments into four

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standard areas (Productivity, Maintenance, Innovation and Growth). This is the same

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categorization that was used to prepare the 2007 capital expense portfolio.

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Maintenance

Productivity

Protecting the asset base or current asset returns

Maintenance investments are necessary to maintain the functionality and performance levels of the current asset base including adhering to regulatory requirements and refresh of technology

Doing what we do at lower cost or with higher effectiveness—increasing the return of current assets

Productivity investments focus on driving short-term profitability and asset utilization improvements within existing processes

Growth

Innovation

Doing more of what we do, or doing it differently (acquisitions)—growing the asset base

Growth investments relate to an increase in the scale of the business without improving the underlying performance of the asset.

Doing new things— developing new assets

Innovation investments present the testing of new opportunities to reveal productivity improvement or growth potential for scaled up initiative

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Figure 1: Capital Project Investment Categories

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Each project is assessed on its strategic value and risk. Strategic alignment is a means of

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ensuring that a program is visibly linked to THESL’s strategy. The strategic alignment

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criteria are updated on an annual basis and are a subset of those that the executive team

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uses to monitor the program’s performance. The risk criteria has been developed and

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agreed to by the stakeholders and is used for evaluating proposed projects. A standard

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prioritization model takes into consideration financial cost and benefits, risk, value,

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strategic alignment, and corporate values to determine the overall organization priority of

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a project.

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The results of the prioritization process were reviewed with each of the executive

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sponsors as well as the executive team (including President, CFO and COO) and final

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decisions are reflected in the recommended capital expense portfolio.

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2008-2010 PORTFOLIO PROGRAM ANALYSIS

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The THESL strategic plan articulates four major areas of focus: Operational, Customers,

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Financial, and People.

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The corresponding IT&S programs have been formulated to (a) assist THESL’s business

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partners in meeting their key objectives through the appropriate use of technology and (b)

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providing these services according to governance policies and procedures that are

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mandated both internally (e.g., THESL business units) and externally (e.g., regulators and

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THESL external stakeholders).

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The 2008-2010 Portfolio consists of 11 programs with an overall budget of $77.3 million.

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The programs are comprised of projects that have been validated via the portfolio

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management process, assessed on business and strategic alignment and considerations of

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project risks, costs and benefits. The three-year capital project investment portfolio are

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apportioned into 61 percent Productivity and 39 percent Maintenance projects with a

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trend toward a decrease in Productivity programs and increase in Maintenance programs

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over the next three years.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14

Figure 2: Total Cost of 2008-2010 IT-Enabled Portfolio

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Table 1: Portfolio Breakdown by Investment Category and Portfolio classification

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($ Millions)

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Investment Category 2008 Test 2009 Test 2010 Test Grand Total

Maintenance 6.3 9.1 14.5 30.0

Productivity 21.4 18.1 7.8 47.3

Grand Total 27.7 27.2 22.3 77.3

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For the first two test years (2008 and 2009) large projects, such as Customer Information

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System and Infrastructure’s Office Refresh, account for a significant proportion of the

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portfolio. THESL’s stated long term objective is to maintain a balance between

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productivity and maintenance projects. This reflects an effective management of assets,

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distributed end-of-lifecycle upgrades and availability of funding for efficiency

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enhancements.

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Total Portfolio: $77.3 million

Productivity

Productivity MaintenanceMaintenance InnovationInnovation GrowthGrowth

Total Cost of IT-Enabled Projects

Total Cost of IT-Enabled Projects

Maintenance 39% $30.0 million

Productivity

Productivity MaintenanceMaintenance InnovationInnovation GrowthGrowth

Productivity 61% $47.3 million

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The summary of costs, by year, for each of the major programs that comprise the capital

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expense budget is presented as follows:

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Table 2: Allocation of funds to Programs ($ Millions)

5 0 2 4 6 8 10 12 14 16 18 2010 1.7 6.4 0.3 0.9 1.4 0.6 1.5 0.5 4.0 0.0 0.2 1.4 3.6 2009 2.7 2.6 6.6 0.0 2.7 1.1 1.2 0.5 2.0 1.8 0.1 2.5 3.6 2008 2.4 0.5 9.6 0.0 1.6 2.1 0.8 2.5 0.0 0.8 0.8 2.4 4.3 Business Intelligence Core Legacy Upgrades CIS CRM Security Program SOA Web Enable-ment Mobile Enable-ment Contin-gency HR/OE & Finance ODS Infra. Productivity Infra. Refresh 6 7

Descriptions of these programs (2008-2010) are provided in Exhibit D1, Tab10, Schedule

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THE 2007 PROJECT PORTFOLIO

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The implementation of the Portfolio Management process was initiated in the latter part

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of 2006 for the 2007 projects. The new process introduced the preparation of Project

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Origination Documents and Business Cases resulting in collaboration and agreement

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between IT&S and the business units who must sign-off on the scope, deliverables and

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benefits of the project.

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Based on the collaboration with the business units, the overall 2007 IT Project Portfolio

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budget is $20.9 million. The allocation of funds is 38 percent Maintenance and 62

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percent Productivity, which aligns with THESL’s stated objective of maintaining a

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balance between productivity and maintenance projects and is in line with the 2008-2010

7 programs. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Figure 3: Total Cost of 2007 IT-Enabled Projects

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Total Cost of IT-enabled Projects = $20.9 Million 62% $12.9 Million 38% $8.0 Million Growth 0% $0 Productivity Maintenance Innovation 0% $0

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Table 3: 2007 - Allocation of funds to Programs ($ Millions)

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Program Name 2007 Bridge

Business Intelligence and Data Management 0.5

Support Area Applications 0.6

Customer Information System (CIS) 1.7

Outage / Distribution Management Systems (OMS/DMS) 4.4

Geo Electric mApping Records (GEAR) 1.6

Asset Data Management & Application Conversions 1.0

Project Portfolio Management System (PPM) 0.7

Security Program 0.6

Infrastructure Program 7.2

Operational Data Store (ODS) 2.7

Grand Total 20.9

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Table 4: 2007 - Allocation of funds to Programs ($ Millions)

3 0 1 2 3 4 5 6 7 8 2007 0.5 0.6 1.7 4.4 1.6 1.0 0.6 7.2 2.7 0.7 Business Intelligence Support Area

Applications CIS OMS/DMS GEAR

Asset

Management Security Program Infrastructure

Operational Data

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