The Business-Oriented CIO: A Guide to Market-Driven Management

Chapter 4. Portfolio Management

The available supply of every commodity is limited. If it were not scarce with regard to the demand of the public, the thing in question would not be considered an economic good, and no price would be paid for it.

—Ludwig von Mises

The race is not always to the swift, nor the battle to the strong, but that's the way to bet.

—Damon Runyon

Economics is sometimes described as the study of scarce resources. They are scarce because the demand exceeds the supply, increasing their value. Economics is commonly divided into microeconomics and macroeconomics. Microeconomics deals with how individual organizations, such as a company or a household, make, buy, consume, manage, or sell scarce resources. Macroeconomics studies how collections of individual organizations deal with scarce resources.

Why is this important for portfolio management? The parallels between economics and portfolio management are striking. Information technology (IT) resources are scarce. Not everyone can have everything they want from IT, because IT simply does not have the resources to satisfy every demand. The traditional corporate project selection process is similar to the processes operating in microeconomics. Individual organizations compete for the approval of projects they want IT to undertake with its limited resources. Portfolio management, however, differs from the traditional corporate project selection process because it examines all project requests, calculates the total IT resources ...