Managing an IT portfolio on a synchronised level, or: The costs of partly synchronised investment valuation

IT investments are usually risky by nature and account for a considerable part of annual investment budgets. Though value-based IT portfolio management (ITPM) aims at sustained economic growth and long-term value creation regarding IT investments, companies often fail to implement a synchronized ITPM approach that considers all relevant risk-/return components within IT investment valuation. In this paper we compare a synchronized and an only partly synchronized valuation of IT investments within a company`s ITPM by means of an optimization model. We show that an only partly synchronized IT investment management leads to sub-optimal investment decisions as especially stochastic interdependency structures are neglected. Furthermore, we analyze how different risk-/return structures of IT investment opportunities affect the valuation error resulting from an only partly synchronized IT investment valuation and conduct a comprehensive simulation study to further validate our findings.