Risk Management of IT Services Portfolios: The Profit-at-Risk Approach.

Publication Type

Journal Article

Publication Date

1-2008

Abstract

Information technology (IT) services providers are exposed to exogenous risks faced by the industry as a whole, and endogenous risks from their current portfolio of IT contracts. This exposure may lead to cost overruns or legal responsibility for service-level breeches. Providers can leverage information about their risk positions implied by their IT services contract portfolios to gain strategic advantage over their competitors. We build theory in support of a new construct, profit-at-risk, for evaluating the trade-offs between contract profitability and service-level risk, stemming from financial economics theory and models. We simulate an IT services contract portfolio, and show how managers can reduce organizational risk by forgoing profit-maximizing contracts in lieu of more conservative service-level agreements, yet still achieve high returns. Our approach provides decision support for ex ante contract evaluation and negotiation, and a means to conduct ex post efficiency evaluation. It also aligns IT service management with best practices in financial management.

Keywords

efficient frontier, financial economics, IT contracts, IT services, managerial decision making, mechanism design, portfolio management, profit-at-risk, service science, value-at-risk

Discipline

Computer Sciences | Management Information Systems

Research Areas

Information Systems and Management

Publication

Journal of Management Information Systems

Volume

25

Issue

1

First Page

17-48

Last Page

17-48

ISSN

0742-1222

Identifier

10.2753/MIS0742-1222250102

Publisher

Taylor & Francis (Routledge): SSH Titles

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