Candidate Diversity and Granularity in IT Portfolio Construction

Abstract

The construction of a superior IT portfolio remains an open research question in prior literature. For addressing this gap, we investigate two unique characteristics of IT investment projects that may make it more or less likely to construct a superior IT portfolio in this study. We are mainly grounded on the modern portfolio theory to develop propositions regarding the relationships among such characteristics and their impacts on IT portfolio construction performance. Our methodology combines optimization modeling, real-world data, numerical simulation (Monte Carlo), and computational experiment. One main finding shows that, for any set of candidate IT investment projects, their attribute diversity and investment granularity could jointly influence the resultant IT portfolio construction performance. Even when a very tight budget is provided, a set of candidate IT investment projects with higher diversity and granularity would still generate a superior IT portfolio. In other words, the diversity and granularity of IT portfolio construction candidates can positively affect portfolio performance, although budget limits can impose a negative impact on the performance.