A portfolio approach to evaluating information technology capital projects
How to select projects to be funded?
Selection of projects will depend on the goals and project portfolio. Lone experimental projects in important growth areas may have different hurdle rates then projects offering incremental improvements to current operations. Left-hand ideas must also be considered in light of a viable business model to integrate innovations with existing operations and provide a suitable return. Evaluation of individual projects should not occur in a vacuum, for example infrastructure projects may affect the costs and benefits of other on-going projects, or projects currently under evaluation. Valuation of infrastructure projects as stand-alone projects can skews the perceived value to the organization, and results in sub-optimal decisions.
Evaluation of a Portfolio of Projects
The goal in evaluating a portfolio of capital projects is to provide the means to manage the capital investment of the organization by considering the relative performance of existing and planned capital projects as measured by their contribution toward the goals of the organization. This information allows decisions to be made regarding capital allocation amongst functional areas, as well as between current and future benefits, in order to maximize the benefit to the organization from their capital project investments.
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