Portfolio Selection Model for Enhancing Information Technology Synergy

Abstract

This paper presents a methodological framework for IT project selection that focuses on the impact of synergy enhancement on portfolio return and risk. As the size of firms' IT investments continues to increase, the demand for strong methodologies for IT portfolio selection has been increasing. Using the mean-variance efficient frontier as a tool to balance portfolio return and portfolio risk, we develop a model for IT portfolio selection. Unlike existing IT portfolio selection models, in this framework, the enhanceable project interdependency, project synergy, is distinguished from the inherent project interdependency, project covariance. This model enables firms to examine the effect of synergy enhancement on project portfolio risk and highlights the benefit of portfolio management of IT projects.