Risk Management of IT Services Portfolios: The Profit-at-Risk Approach.
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.
efficient frontier, financial economics, IT contracts, IT services, managerial decision making, mechanism design, portfolio management, profit-at-risk, service science, value-at-risk
Computer Sciences | Management Information Systems
Information Systems and Management
Journal of Management Information Systems
Taylor & Francis (Routledge): SSH Titles
KAUFFMAN, Robert John and Sougstad, R..
Risk Management of IT Services Portfolios: The Profit-at-Risk Approach.. (2008). Journal of Management Information Systems. 25, (1), 17-48-17-48. Research Collection School Of Information Systems.
Available at: http://ink.library.smu.edu.sg/sis_research/2760