IT applications portfolio management under business and implementation uncertainty

Abstract

Corporations need to improve business processes in order to enhance velocity and service levels while reducing their processing costs and differentiating themselves in the face of competition. The levitation of importance beyond support roles has raised IT investment decisions to high priority in chief executive officers’ agendas. Corporate planning groups as well as lines of business are increasingly applying techniques of IT applications portfolio management in a more systematic fashion to improve decision-making and resource-allocation processes.

Recent advances in software engineering and IT service delivery methodologies have achieved the logical separation of business functions from implementation. This separation has made a new breed of innovative IT project possible with a new project risk structure; the adjustment of portfolio management techniques is appropriate. We present an integrated portfolio management model so that the corporation can focus on organic growth through sources at both the department and top management levels. The research gives clear advice as to how top management can seek economic growth by selecting an entrepreneurial strategic posture, implying a strong risk-taking propensity. By integrating a risk-return model and risk-tolerance paradigm to cope with today’s risk structure, overall capabilities can improve the decision process and the corporation’s performance as well. The application of the integrated technique to a Japanese manufacturing firm is described.

Keywords

IT-investment management / application portfolio management / real options analysis / risk-return model / risk-tolerance paradigm / timing decision

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