4. Analyze

34. proposed IS IT portfolio.docx

Way 34: Proposed IS/IT project portfolio

A useful way to organize IT efforts within an organization is the use of IS/IT portfolio. In its most simple form a portfolio consists of all IT projects that have been started in an organization. With a more mature IS/IT portfolio management companies can find a set of projects that return optimal value.
’The impact of project portfolio management on information technology projects’

The basis is to focus investment on risk-reward expectations according to the concept of Modern Portfolio Theory (MPT) from Harry M. Markowitz. In 1989 F.Warren McFarlan suggested this MPT approach to apply to IS/IT investment in his article ‘Portfolio approach to information systems’.

To get an optimal IT/IS portfolio this tool describes in three steps how to select the right projects:

•First the value and risk of individual projects need to be assessed.
’How Experienced Project Managers Assess Risk’
‘Calculating project management's return on investment’

•The next step is to calculate and plot all different IS/IT portfolios to show the portfolios with high value/low risk. A method for this analysis is the Monte Carlo simulation.


•The last step is to choose the portfolio that is on the efficient frontier to be certain there is no other portfolio with the same risk and a higher value or with the same value and a lower risk.

To automate or aid the three process steps, a large number of developers have set out to develop professional tools for project portfolio management. A list of such tools can be found at ‘Project Portfolio Management Tools’.