The Effect of Positive Quadrant Dependence between Projects on Portfolio Value

  • John C. Burke
  • Michael J. Shaw
Part of the Lecture Notes in Business Information Processing book series (LNBIP, volume 52)

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.

Keywords

Portfolio Management Copula Project Management 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2010

Authors and Affiliations

  • John C. Burke
    • 1
  • Michael J. Shaw
    • 1
  1. 1.University of Illinois at Urbana-ChampaignUSA

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