Investment Portfolio Methodologies Pertemuan Matakuliah: A Strategi Investasi IT Tahun: 2009

Bina Nusantara University 3 Introduction Companies have portfolios of technology Examine set of methodologies that related to the idea of establishing a collection or portfolio investment

Portfolio management Involves collecting all IT investments in one place and controlling them as single set of interrelated activities Monitor and manage all IT investments of organization, so that benefits, costs, and risks of individual investments can be determined whether or not they are making a significant contribution Overall view of IT investments to evaluate if individual investments correspond with organizational strategy Continuous process that views IT investments as assets as opposed to costs Has been applied to IT investment evaluation and management Bina Nusantara University 4

Investment Portfolio Methodologies Defined as IT investment evaluation techniques based on portfolio management May be applied in situations where number of individual IT investment is large and when aligning IT investment with organizational strategy is important Two specific methodologies : –Ward’s portfolio approach –Peter’s investment mapping methodology Bina Nusantara University 5

Ward’s Portfolio Approach Views organization’s IT investments as belonging to different categories in a portfolio of IT investments Provides consistent set of rules and procedures to evaluate individual IT investments and provides information necessary for setting priorities for set of IT investment Involves segmenting organization’s IT investments into 4 categories, identifying possible IT investment in each category and making best investment decisions Bina Nusantara University 6

Categories of IT investments Strategic ; essential or critical in achieving business objectives and executing strategies High potential ; investments that may or may not be important to business success Factory ; those that organization currently depends on to improve the effectiveness and efficiency of business process and activities Support ; IT investments that valuable but not critical to improve the efficiency of support activities throughout organization Bina Nusantara University 7

Feasibility Study Involves analyzing whether or not an investment is feasible given organizational resources and constraints Technical feasibility : do hardware, software, and technical resources exist to implement IT? Economic feasibility : do benefits of IT outweigh its costs? Operational feasibility : does proposed IT fit into the existing managerial and organizational context? Bina Nusantara University 8

Steps to evaluate individual IT investments 1.Construct a portfolio of current IT investments 2.Determine the degree to which each IT investment assists in meeting the objectives 3.Evaluate IT investment Bina Nusantara University 9

Setting Priorities Considering : IT benefits IT costs IT risk  See Table 1-4 Bina Nusantara University 10

Peter’s Investment Mapping Methodology Consists of prescriptions for creating investment portfolio map, evaluating overall IT strategy, identifying & evaluating individual investments, and managing benefits after implementation Overall IT management tool for assessing and monitoring every aspect of IT investment Consists 3 stages : –Mapping investment portfolio –Evaluation of alternative investments and performance measurement –Management of benefits after implementation Bina Nusantara University 11

Mapping investment portfolio 3 types of benefits :  See Figure 1 Enhance productivity Minimize risk Expand the business 3 types of investment orientation :  See Figure 2 Support technical infrastructure Perform routine business operations Influence the market Bina Nusantara University 12

Cost-benefit hierarchy Used to value the benefits if IT investment Assist decision-makers in selecting measurable metrics Steps : 1.Identify key measurable variables that reflect the impact of expected benefits of organizational performance 2.Identify the expected changes in key variables and their impact on profitability Bina Nusantara University 13