Abstract
Increasingly CIO’s are interested in managing their IT Project Portfolios centrally. This may be done for a variety of reasons, e.g. to manage costs, reduce duplication of effort, reduce the number of silos in the organization, better understand what the firm is doing, or to align their IT investments with their firm’s strategy. In particular, during this time of an economic downturn managers want to use their resources efficiently in response to tightening IT budgets. An important question then becomes how to value these projects. Real Option Analysis (ROA) has become one of the common tools used for valuing projects. However, the assumption of independence between projects often made by researchers may undervalue growth options under a wide variety of assumptions when these projects are positive quadrant dependent (PQD), a form of positive correlation.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
Similar content being viewed by others
References
Armstrong, M.: Copula Catalogue. Part 1: Bivariate Archimedean Copulas, http://www.cerna.ensmp.fr (downloaded April 13, 2008)
Armstrong, M., Galli, A., Bailey, W., Couët, B.: Incorporating Technical Uncertainty in Real Option Valuation of Oil Projects. Journal of Petroleum Science and Engineering (44), 67–82 (2004)
Bardhan, I., Bagchi, S., Sougstad, R.: Prioritizing a portfolio of information technology investment projects. Journal of Management Information Systems 21(2), 33–60 (2004)
Bak, P.: How Nature Works. Copernicus, New York (1997)
Benaroch, M.: Option-Based Management of Technology Investment Risk. IEEE Transactions on Engineering Management 48(4), 428–444 (2001)
Benaroch, M.: Managing Information Technology Investment Risk: A Real Options Perspective. Journal of Management Information Systems 19(2), 43–84 (2002)
Benaroch, M., Kauffman, R.J.: A Case for Using Real Options Pricing Analysis to Evaluate Information Technology Project Investments. Information Systems Research 10(1), 70–86 (1999)
Benaroch, M., Kauffman, R.J.: Justifying Electronic Banking Network Expansion Using Real Options Analysis. MIS quarterly 24(2), 197–225 (2000)
Benaroch, M., Lichtenstein, Y., Robinson, K.: Real options in information technology risk management: An empirical validation of risk-option. MIS Quarterly 30(4), 827–864 (2006)
Clemon, R.T., Reilly, T.: Correlations and Copulas for Decision and Risk Analysis. Management Science 45(2), 208–224 (1999)
Cyert, R.M., March, J.G.: A Behavioral Theory of the Firm. Prentice Hall Englewood Cliffs, New Jersey (1963)
de Melo e Silva Accioly, R., Chiyoshi, F.Y.: Modeling Dependence with Copulas: a Useful Tool for Field Development Decision Process. Journal of Petroleum Science and Engineering 44, 83–91 (2004)
Dixit, A.K., Pindyck, R.S.: Investment under Uncertainty. Princeton University Press, Princeton (1994)
Fichman, R.: Real Options and IT Platform Adoption: Implications for Theory and Practice. Information Systems Research 15(2), 132–154 (2004)
Gaume, E.: On the Asymptotic Behavior of Flood Peak Distributions. Hydrology and Earth System Sciences 10, 233–243 (2006)
Kersten, B., Verhoef, C.: IT Portfolio Management: A Banker’s Perspective on IT. Cutter IT Journal 16(4), 34–40 (2003)
Markowitz, H.M.: Portfolio Selection. Journal of Finance 7(1), 77–91 (1952)
Mun, J.: Real Options Analysis. John Wiley & Sons, Hoboken (2002)
Nelson, R.B.: An Introduction to Copulas. Lecture Notes in Statistics. Springer, New York (1999)
Nelson, R.B.: An Introduction to Copulas, 2nd edn. Lecture Notes in Statistics. Springer, New York (2006)
Nelson, R., Winter, S.: An Evolutionary Theory of Economic Change. Harvard University Press, Cambridge (1981)
Panzar, J.C., Willig, R.D.: Economies of scope. American Economic Review 71, 268–272 (1981)
Ponzo, P.: Copulas, http://www.gummy-stuff.org/copulas-2.htm (retrieved May 3, 2008)
Salvadori, G., De Michele, C.: Frequency Analysis via Copulas: Theoretical Aspects and Applications to Hydrological Events. Water Resources Research 40, 1–17 (2004)
Schmidt, T.: Coping with Copulas. In: Rank, J. (ed.) Copulas - From Theory to Application in Finance, pp. 3–34. Risk Books, London (2007)
Sklar, A.: Fonctions de répartition à n dimensions et leurs marges. Publications de l’Institut de Statistique de L’Université de Paris 8, 229–231 (1959)
Trigeorgis, L.: Real Options: Managerial Flexibility and Strategy in Resource Allocation. MIT Press, Cambridge (1996)
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2010 Springer-Verlag Berlin Heidelberg
About this paper
Cite this paper
Burke, J.C., Shaw, M.J. (2010). The Effect of Positive Quadrant Dependence between Projects on Portfolio Value. In: Sharman, R., Rao, H.R., Raghu, T.S. (eds) Exploring the Grand Challenges for Next Generation E-Business. WEB 2009. Lecture Notes in Business Information Processing, vol 52. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-17449-0_26
Download citation
DOI: https://doi.org/10.1007/978-3-642-17449-0_26
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-17448-3
Online ISBN: 978-3-642-17449-0
eBook Packages: Computer ScienceComputer Science (R0)