Selecting the Most Desirable IT Portfolio under Various Risk Tolerance Levels

Abstract

To better assist decision-makers (e.g., enterprise executives) in selecting the most desirable IT portfolio, this study proposes a new IT Portfolio Efficient Frontier model that incorporates the decision-maker`s risk tolerance levels. The proposed model, built on portfolio optimization along with experimental design and simulation data, considers three IT portfolio scenarios: even distribution-based IT portfolios, uneven distribution-based IT portfolios, and dominant IT portfolios. Our findings show that the IT portfolio efficient frontiers derived from both an even distribution-based IT portfolio and an uneven distribution-based IT portfolio have a relatively positive relationship between IT portfolio risk and return. Our findings also indicate that if IT investments are part of a dominant IT portfolio, an inflection point of the IT portfolio efficient frontier appears under the decision-maker`s medium risk tolerance level, and the most desirable IT portfolio is generated when a decision maker`s risk tolerance level is medium or higher.