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Portfolio Theory: The Contribution of Markowitz’s Theory to Information System Area

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Information Systems Theory

Part of the book series: Integrated Series in Information Systems ((ISIS,volume 28))

Abstract

Portfolio theory is concerned with risk and return. However, assigning weight to the risk at least equal to the yield was the big news in the 1950s. Until then, both in academia and for the general public, the stock market was no more than a playground for speculators. So in 1952, Nobel laureate Harry Markowitz, then a young doctoral student in operations research at the University of Chicago, demonstrated mathematically, for the first time, why putting all your eggs in one basket is an unacceptable risk strategy, and that diversification is the best deal for an investor or a manager of a company. In Markowitz’s analysis, the expected return and risk of several portfolios were quantified. Therefore, portfolio theory is about maximizing the benefits of investments considering risk and return. In the area of Information Systems (IS) portfolio theory has influenced two major streams ­regarding Information Technology Portfolio Management (ITPM): (a) analysis and classification of IT investments in different dimensions and (b) analysis and classification of IT projects. Both lines of research use Markowitz’s studies as reference to evaluate the trade-off between risk and return on investments in IT projects at the organizational level of analysis. Thus, IT investments can be managed as a ­portfolio, combining risk and return to maximize the benefits of IT investment, and help ­managers to choose the best option and make the best decision.

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Abbreviations

ATM:

Automatic teller machines

CAPM:

Capital asset pricing model

E:

Expected return

IS:

Information systems

IT:

Information technology

ITPM:

Information technology portfolio management

ROT:

Real options theory

TCO:

Total cost of ownership

V:

Variance of return

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Acknowledgement

The authors acknowledge support from the Brazilian agencies CAPES and CNPq.

Author information

Authors and Affiliations

  1. Department of Administrative Science, PhD Program, School of Business, Universidade Federal do Rio Grande do Sul – PPGA/UFRGS, Porto Alegre, Rio Grande do Sul, 90010-460, Brazil

    Pietro Cunha Dolci

Authors
  1. Pietro Cunha Dolci
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  2. Antônio Carlos Gastaud Maçada
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Corresponding author

Correspondence to Pietro Cunha Dolci .

Editor information

Editors and Affiliations

  1. , School of Business and Economics, Swansea University, Singleton Park, Swansea, SA2 8PP, United Kingdom

    Yogesh K. Dwivedi

  2. IMD, Ch. de Bellerive 23, Lausanne, 1001, Switzerland

    Michael R. Wade

  3. Principia College, Maybeck Place 1, Elsah, 62028, Illinois, USA

    Scott L. Schneberger

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Dolci, P.C., Maçada, A.C.G. (2012). Portfolio Theory: The Contribution of Markowitz’s Theory to Information System Area. In: Dwivedi, Y., Wade, M., Schneberger, S. (eds) Information Systems Theory. Integrated Series in Information Systems, vol 28. Springer, New York, NY. https://doi.org/10.1007/978-1-4419-6108-2_10

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