Value based IT Investment Portfolio Management

With the increasing complexity of decisions within a global competitive environment, information technology (IT) is developing more and more into a critical success factor for firms. Amongst other things, this leads to the enormous sum of 3 trillion USD per year, which is invested in IT by firms worldwide. But at the same time, up to 20% of all IT investments fail, which corresponds to a global value destruction of approximately 600 billion USD. One major reason for this results from a misallocation of the available IT budget based on deficient approaches for the planning, evaluation, and selection of IT investments. Finally because of this dissatisfying situation, the IT Governance requires a value based management of the IT. But this does not man only to consider risk and return of single IT investments in isolation. Rather, interaction effects which occur among IT investments and their impact on risk and return have to be quantified in a scientifically founded manner. This requires a consideration of all IT investments within an IT investment portfolio. Furthermore, risk and return of IT investments can be influenced by managerial flexibilities which are intensively discussed in the literature: (1) Temporal Flexibility: Evaluation of the impact of different real options like to abandon or to expand an IT investment during its runtime, (2) Sourcing Flexibility: Evaluation of the impact of different Sourcing opportunities like on- vs. offshore conduction of IT investments. (3) IT Service Flexibility: Evaluation of different IT Service designs like different IT Service granularities. As integrated and founded approaches to valuate IT investments which fulfill all the mentioned requirements do not exist yet, the main goal of this research project which is part of the interdisciplinary scientific field of Business Informatics is the development and evaluation of an integrated approach for a Value based IT Investment Portfolio Management (ITIPM) based on real-world problems and empirical data. Methodologically, the work will be based on the Design Science Research paradigm. I already established appropriate know-how at the University of Augsburg, where I supervised a research group on the topic of IT Portfolio Management for two years. In doing so, I was not only able to publish rigorous contributions in several high-quality journals and proceedings of international conferences, but the findings were also applied in practice. Furthermore, I was responsible for creating a research proposal on the topic of IT Portfolio Management, which was granted at the beginning of 2009 by the German Research Foundation (DFG). With the start of my Assistant Professorship in March 2009 at the University of Innsbruck, a funding of the DFG is not possible. But my already established expertise and achieved results are an excellent basis for this proposed research project, and further successful publications can be expected. At the same time, the career development and establishment of a young researcher will be supported.

In this research project we developed approaches that enable a more accurate planning, valuation, and selection of firms IT investments.With the increasing complexity of decisions within a global competitive environment, information technology (IT) is developing more and more into a critical success factor for firms. Amongst other things, this leads to the enormous sum of 3 trillion USD per year, which is invested in IT by firms worldwide. But at the same time, up to 20% of all IT investments fail, which corresponds to a global value destruction of approximately 600 billion USD. One major reason for this results from a misallocation of the available IT budget based on deficient approaches for the planning, valuation, and selection of IT investments. Finally because of this dissatisfying situation, standards for a value based management of the IT are required. But this does not mean only to consider risk and return of single IT investments in isolation. Rather, interaction effects which occur among IT investments and their impact on risk and return have to be quantified in a scientifically founded manner. This requires a consideration of all IT investments within an IT investment portfolio. Furthermore, risk and return of IT investments can be influenced by managerial flexibilities which are intensively discussed in the literature: (1) Temporal Flexibility: Evaluation of the impact of different real options like to abandon or to expand an IT investment during its runtime, (2) Sourcing Flexibility: Evaluation of the impact of different Sourcing opportunities like on- vs. offshore conduction of IT investments. (3) IT Service Flexibility: Evaluation of different IT Service designs like different IT Service granularities.Against this backdrop, we developed and evaluated approaches for a value-based IT Investment Portfolio Management (ITIPOM) based on real-world problems and empirical data that satisfy the before mentioned requirements. These approaches shall enable firms to plan, value and select their IT investments more accurately. During the research project, we already applied and evaluated some of the developed approaches together with cooperating firms and received very positive feedback. In the future, the developed approaches could be implemented in a software implementation for a value-based ITIPOM. This would be a major step for firms towards a correct planning, valuation, and selection of their IT investments and could contribute to reduce the high failure rates of IT investments in practice.