Teaching Tip: Utilizing Classroom Simulation to Convey Key Concepts in IT Portfolio Management
Authors: Eric C. Larson
Year: 2013

1. INTRODUCTION This IT portfolio management (ITPM) simulation is designed for use in an MBA course on the management and strategic implications of IT. The simulation allows students to internalize their theoretical knowledge of the key concepts and apply that knowledge in a real decision making context. It also illustrates the interdependencies and trade-offs among the concepts of ITPM. A comprehensive approach to ITPM includes evaluating options, actively managing the IT portfolio, aligning the IT portfolio with business strategy, basing portfolio decisions on financial measures such as NPV and ROI, ranking IT projects in terms of organizational priorities, centralized project monitoring and standardization of IT across the corporation (Jeffery and Leliveld 2004). Firms that use such a comprehensive approach to ITPM benefit from improved return-on-asset (ROA) performance, yet just 17% of firms actually take such an approach (Jeffery and Leliveld 2004). The simulation detailed here is intended to accomplish two learning objectives toward improving the practice of ITPM. Students engaged in the simulation are expected to: 1) develop an appreciation of the key concepts required to effectively manage an IT project portfolio, and 2) understand the economic value of taking a comprehensive view when assessing a firm's IT project portfolio. The simulation provides students with experiential learning recognized as important in the application of knowledge to improve decision making quality (Stewart, et al., 2011) and an effective mechanism for students to develop relevant knowledge and skills in complex organizational contexts related to information systems (e.g., Ayyagari, 2011). The ITPM simulation complements other classroom IT management simulations for IT audits (Merhout, Newport and Damo, 2012), requirements gathering (Ramiller and Wagner, 2011), and ERP systems (Seethamraju, 2011; Leger, 2006). Students experience a realistic role-playing experience of debating issues and making decisions that are required in real managerial situations related to ITPM, defined as "managing IT as a portfolio of assets similar to a financial portfolio and striving to improve the performance of the portfolio by balancing risk and return" (Jeffrey and Leliveld, 2004, pg. 41). Addressing the portfolio level requires the context of IT to be simulated to ensure an understanding of key concepts as they apply specifically to managing an IT portfolio. This is especially true given the interdependence of IT projects that comprise an enterprise IT project portfolio (Dickinson, Thornton and Graves, 2001). The simulation is novel in that it is designed to highlight ten key concepts of ITPM that we suggest are relevant and important for both IT and general managers to understand in order to optimize their firm's return on IT investment. The exercise is also innovative with respect to its ability to recreate the context of a firm's decision making structure and place students into the decision making context without leaving the classroom. In this context, groups of students represent different units within a single firm instead of competing firms, creating realistic incentives for both coordination and competition. 2. IT PORTFOLIO MANAGEMENT In this proposed framework, ten key concepts that managers should understand in order to drive strong ITPM capabilities for the firms they manage are described (see Table 1), with associated conceptual references, and a brief description of how each concept is illustrated in this simulation. These concepts include common financial investment concepts such as prioritization given scarce resources, balancing risk vs. return, real option value and aggregate risk. Additional key concepts account for the interdependence of projects with other projects and with the rest of the firm. Concepts demonstrating this interdependence include economies of scope, lock-in/opportunism, complementarity of projects, the strategic fit of the IT project(s), the value of a Project Management Office and the value of coordination. …