IT project portfolio optimization: A risk management approach to software development governance
by I. R. Bardhan,
R. J. Kauffman,
and S. Naranpanawe
Little research has examined how to prioritize a portfolio of
software projects. When project interdependencies are considered,
the complexity of prioritizing even a small number of projects
poses computational and evaluative challenges. We develop a
prioritization approach to integrate real option analysis with a
project portfolio optimization model. Our approach makes
information technology (IT) portfolio risk management and valuation
a meaningful tool for managers. Using real-world data, we
implement the portfolio optimization model in a computationally
feasible manner and demonstrate the superiority of our integrated
optimization model. Our approach helps managers to make effective
decisions, such as for investments in a service-oriented architecture,
to enable flexible IT capabilities. When adaptability is paramount to
success, managers can utilize our methods to inform themselves
about the optimal timing of technology adoption decisions. Managers
should recognize that IT investment decisions consist of many
contingencies, so it is important to balance project-specific risks with
the potential value derived across a multiperiod horizon. This
permits us to make a contribution to the emerging discipline of
software development governance in support of senior management
decision making.
PDF
