Portfolio theory

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Portfolio theory

Portfolio Theory is concerned with risk and return. The investor is concerned only with the expected values of securities and the interested in the expected value of the portfolio. To maximize the expected value of a portfolio, one neeed only invest in one security (the security with maximum expected return). Thus action based on expected retur only must be rejected as descriptive of actual or rational investment behavior. Is seemed obvious that investors are concerned with risk and return, and these sould be measured for the portfolio as a whole. Therefore, the portfolio theory is about maximize the benefits of investments considering risk and return. In IS area, IT investments can be managed as a portfolio, combining risk and return to maximize the benefits of IT investment and choose the best.



Alternate name(s)

Modern Portfolio Theory; Markowitz Mean-variance

Main dependent construct(s)/factor(s)

Investment, IT investment

Main independent construct(s)/factor(s)

Risk (variance), Return

Concise description of theory

Modern portfolio theory (MPT) is a theory of investment which attempts to explain how investors can maximize return and minimize risk. Although MPT is widely used in practice in the financial industry and several of its creators won a Nobel prize for the theory, in recent years the basic assumptions of MPT have been widely challenged by fields such as behavioral economics, and many companies using variants of MPT have gone bankrupt in various financial crises. The theory is used in different areas including IS, to help manage IT investments.

Diagram/schematic of theory

Originating author(s)

Markowitz; McFarlan; Turner and Lucas

Seminal articles

Markowitz, Harry M. (1952). "Portfolio Selection". Journal of Finance 7 (1): 77–91.

McFarlan, W. F. (1981). Portfolio approach to information systems. Harvard Business Review, v. 59, n°. 5, p. 142-150, 1981.

Turner, J. and Lucas, H. C. (1985). Developing strategic information Systems. In W. Guth. Handbook of Business Strategy. Boston, Warren, Gorham e Lamont.

Originating area


Level of analysis


IS articles that use the theory

Aral, S. and Weill, P. (2007). IT Assets, Organizational Capabilities, and Firm Performance: How Resource Allocations and Organizational Differences Explain Performance Variation. Organization Science, v. 18, nº 5, p. 763–780.

Archer, N. P. and Ghasemzadeh, F. (1999). An integrated framework for project portfolio selection. International Journal of Project Management, v. 17, nº. 4, p. 207-216.

Broadbent, M and Weill, P. (1997). Management by maxim: How business and IT managers can create IT infrastructures. Sloan Management Review, 38 (3): 77-92.

Broadbent, M., Weill, P and Neo, B. S. (1999). Strategic context and patterns of infrastructure capability. Journal of Strategic Information Systems, 8 (2): 157-187.

Broadbent, M., Weill, P. and St Clair, D. (1999). The implications of information technology infrastructure for business process redesign. MIS Quarterly, 23 (2): 159-182.

Cameron, B. IT (2005). Portfolio Management: Implications for IT Strategic Alignment. In: Americas Conference on Information Systems (AMCIS), Omaha.

Dolci, P. C. (2009a) Uso da Gestão do Portfólio de TI no processo de gerenciamento e justificativa dos investimentos em Tecnologia da Informação. (Master´s Thesis, School of Management, 2009). Federal University of Rio Grande do Sul.

Dolci, P. C. (2009b). Explorando as Dimensões da Gestão do Portfólio de TI (GPTI) com gestores de TI em empresas brasileiras. . In: Encontro Nacional dos Programas de Pós-Graduação em Administração (Enanpad), São Paulo.

Jeffery M. and Leliveld, I. (2004). Best practices in IT portfolio management. MIT Sloan Management Review, v. 45, n°. 31, p. 40-49.

Karhade, P. P. and Shaw, M. J. (2007) Rejection and Selection Decisions in the IT Portfolio Composition Process: An Enterprise Risk Management Based Perspective. In: Americas Conference on Information Systems (AMCIS), Keystone.

Kumar, R.; Ajjan, H. and Niu, Y. (2008). Information technology Portfolio Management: literature review, framework, and research issues. Information Resource Management Journal, v. 21, nº 3, p. 64-87. Application Portfolio Management. Författare: Kellerman, Jimmi ... the Framework for Application Destiny Determination (FADD) MIT Sloan Management Review, v. 45, n°. 31, p. 40-49

Maizlish, B. and Handler, R. (2005). IT Portfolio Management Step-by-Step: Unlocking the Business Value of IT. John Wiley & Sons, Inc., New Jersey.

Moraes, R. O. and Laurindo, F. J. B. (2003). Um Estudo de Caso de Gestão de Portfólio de Projetos de Tecnologia da Informação. Gestão e Produção, 10 (3): 311-328.

Peters, R. J. and Verhoef, C. (2008). Quantifying the yield of risk-bearing IT-portfolios. Science of Computer Programming, v. 71, p. 17–56.

Phillips, B. A (2007). Theoretical Framework for Information Systems Portfolio Management. Americas Conference on Information Systems (AMCIS), Keystone.

Schniederjans, M.J.; Hamaker, J.L. and Schniederjans, A.M. (2004) Information Technology Investment: Decision-Making Methodology, World Scientific Publishing Co., Singapure.

Stewart, R. A. (2008). A framework for the life cycle management of information technology projects: ProjectIT. International Journal of Project Management, 26 (2): 203–212.

Verhoef, C. (2002). Quantitative IT portfolio management. Science of Computer Programming, 45 (1): 1-96.

Weill, P. (1992). The relationship between investment in information technology and firm performance: a study of the valve manufacturing sector. Information Systems Research, v. 3, n°. 4, p. 307-333.

Weill, P. and Aral, S. (2006) Generating Premium Returns on Your IT Investments. MIT Sloan Management Review, 47, 2, 38-48.

John Mickney B. and Seifert, F.(2006). Application Portfolio Management A Framework for Application Destiny Determination MIT Sloan Management Review, 49, 4, 40-48

Weill, P. and Broadbent, M. (1998). Leveraging the New Infrastructure: How Market Leaders Capitalize on Information Technology. Harvard Business School Press, Boston.

Weill, P. Subramani, M. and Broadbent, M. (2002). Building IT infrastructure for strategic agility. MIT Sloan Management Review, 44 (1): 56-65.

Weill, P. and Olson, M. (1989) Managing Investment In Information Technology: Mini Case Examples And Implications. MIS Quarterly, v. 13, n°. 1, p. 3-17.

Wehrmann, A.; Heinrich, B. and Seifert, F. (2006). Quantitatives IT-Portfoliomanagement: Risiken von IT-Investitionen wertorientiert steuern. Wirtschaftsinformatik, v. 48, nº. 4, p. 234- 245.

Links from this theory to other theories

Real options theory

External links


Original Contributor(s)

Pietro Cunha Dolci

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