=Paper=
{{Paper
|id=Vol-2565/paper14
|storemode=property
|title=The Method of Forming a Dynamic Projects Portfolio of IT Companies
|pdfUrl=https://ceur-ws.org/Vol-2565/paper14.pdf
|volume=Vol-2565
|authors=Valentina Moskalenko,Fonta Nataliia,Marina Grinchenko
|dblpUrl=https://dblp.org/rec/conf/itpm/MoskalenkoNG20
}}
==The Method of Forming a Dynamic Projects Portfolio of IT Companies==
https://ceur-ws.org/Vol-2565/paper14.pdf
The Method of Forming a Dynamic Projects Portfolio of
IT Companies
Valentina Moskalenko 1[0000-0002-9994-5404], Fonta Nataliia2[0000-0001-5593-1409]
and Marina Grinchenko1[0000-0002-8383-2675]
1 National Technical University “KhPI”, Kharkiv, Ukraine
2 DataArt, Kharkiv, Ukraine
valentinamosk17@gmail.com
Abstract. The formation of the IT company project portfolio considered within
the confines of strategic development planning. It is proposed that the formation
of the portfolio be carried out based on the criterion of maximizing the utility
function. The utility function is formed as an additive convolution of the utility
functions of the efficiency criteria, risk and benefit from the implementation of
this project for the company’s development. It is suggested to consider the total-
ity of IT company project portfolios by years of the planned strategic period as
a dynamic object. The process of forming a dynamic project portfolio has two
stages: at the first stage, the strategic task of forming a dynamic portfolio is
solved as a set of portfolios by years of the planning period; at the second stage,
this portfolio is managed. Management involves changing the composition of
the portfolio according to the changing policies by the years of the planning pe-
riod. Company policies during the planning period are adjusted depending on
changes in the situation in the IT market. Some results of the implementation of
the dynamic portfolio formation method for Ukrainian IT-company are present-
ed. The implementation of this method allowed the project office to rationally
plan the company resources, determine activity directions in the IT market, and
adjust the development policy of the company on the strategic period.
Keywords: Dynamic Project Portfolio, Company Development, Company Pol-
icy, Utility Function.
1 The problem of creating a project portfolio of IT companies
Each IT company in the development of projects faces many challenges. The prob-
lems of managing a portfolio of projects [1] remain relevant. Portfolio management
strategies are being formed, on the basis of which project implementation plans are
determined [2, 3]. Most often, the project portfolio is formed taking into account the
current situation of the IT market for short periods. Because IT companies operate in
an increasingly competitive environment, there is a problem of the formation of the
portfolio on a strategic period [4]. A lot of IT companies usually form a project port-
Copyright © 2020 for this paper by its authors. Use permitted under Creative Commons License
Attribution 4.0 International (CC BY 4.0)
2020 ITPM Workshop.
folio based on the criterion of maximizing profits [5, 6]. However, this approach does
not allow adding to the portfolio projects with less profit, but with greater benefit for
the company’s development. For example, if the project implementation can bring
small profit or zero profit for the IT Company, but the customer of this project may
have profitable projects in the future [4].
Therefore, when forming project portfolios as part of strategic planning, it is im-
portant to consider projects that will not only be profitable for the company, but also
be of strategic importance. The set of IT company project portfolios by years of the
planned strategic period will be called the dynamic portfolio of IT projects. A dynam-
ic object is a physical object, phenomenon or technological process that is subjected
to external influences and as a result changes its state, behavior. The state of a dynam-
ic object is evaluated by some parameters, and its behavior is characterized by a
change in these parameter values over time. A distinctive feature of a dynamic object
is that it has inertia and (or) interactions between its elements extend to a finite peri-
od. Then, by analogy, the totality of IT company portfolios, which are formed by
years of the planning period, can be considered as a dynamic object. A change in its
composition over time leads to a change in its main indicators – profitability and risk.
The situation on the IT market and the economic situation in the country will be con-
sidered as an external impact on the portfolio structure and its indicators. The project
portfolio is formed taking into account the strategic development goals of the IT com-
pany and the strategy for their achievement in the planning period. When setting goals
and strategies the influence of external influences on the company’s activities and
forecasts about the IT market situation is taken into account.
The process of forming a dynamic project portfolio is proposed to be carried out in
two stages: at the first stage, the strategic task of forming a dynamic portfolio as a set
of portfolios by year period is solved; at the second stage, this portfolio is managed.
Management means changing the portfolio composition according to changing poli-
cies by the years of the planning period. Policies are adjusted depending on changes
in the IT market situation.
2 Stage 1. The Strategic Level of Formation for a Dynamic
Portfolio.
2.1 IT Company Policy Approval
The IT company policy is developed based on strategic development goals and the
results of the forecasted situation
t analysis
t in the IT market by years of the strategic
period. Type of policy IP = {P , R }, t = 1,T will determine the minimum value of
t
project profitability P t and the maximum risk level of the project R t [6].
2.2 The Formation of IT Projects - Applicants for Inclusion in the Portfolio
by Year of the Planning Period
The indicators of the effectiveness and risk of projects
P – applicants for inclusion in
portfolios are calculated. Each project b j , j J is characterized by the tuple
t
S btj , btj ; S btj – the project cost; btj – the value of the utility function of the project,
Np
btj = ip ijt ;
i =1
N p – the number of local criteria for evaluating the project (for example, profitability,
risk, significance or benefits for the development of an IT company, etc.); i –
p
weighting coefficient, its value is determined by the expert depending on the adopted
policy of the IT company [7]; ij – normalized value of the utility function for the
t
criterion K i ;
worst best worst
tij = ( K i ( btj ) − Ki ) Ki − Ki
,
Ki ( btj ) – the current value of the criterion K i for the project bt ;
j
worst best
Ki , Ki – respectively, the best and worst value in the allowable range of its
values.
The benefit of IT project implementing for the company’s development is deter-
mined by experts based on prospects analysis of working with the customer of this
project throughout the entire
P strategic period.
The project b j , j J is included in set B t if its utility function value ( j ) is in
t bt
the valid range,
min
t
bt
j max
t ;
min
t
, max
t – accordingly, the minimum and maximum acceptable utility function
value. As a result, project sets B = { b j } , j Q by year of the planning period are
t t t
being formed. These sets are considered as the first portfolio options.
The project office of the IT company analyzes the projects B = {b j }, t = 1,T , de-
t t
t t t
termines their compliance with company policy IP = { P , R } and the possibilities
of providing the project with certain resources.
2.3 Determining the Project Implementation Impact on Company
Development
A procedure to determine the indicator of the impact of IT project development on the
strategic development of the company is proposed to use which is based on expert
methods and factor analysis.
It is assumed that the IT Company has strategic goals and strategies for achieving
them. Implementation of IT projects enables the company carrying out these strate-
gies. When considering each project, it is necessary to determine not only its profit
and risk but also the degree of its influence on the company development. Experts are
involved as specialists in the field of IT company development management.
They determine the factors of the project’s influence on the strategic IT company
development, taking into account the activities of the company, development goals
and strategies. Factors are divided into 2 groups:
1. factors that are directly related to the project, for example, the novelty of the pro-
ject for the company or the compliance level of the project with the company's IT
profile; terms of its implementation (short-term, medium-term or long-term); the
involvement extent of IT company employees in the project, the possibility of staff
training during project development, etc.
2. factors that are associated with the project customer, for example: the relations his-
tory with the customer (whether the customer is a regular); the relations prospects
between the IT company and the customer (will the cooperation be continued in
other projects?); customer’s business environment (his connections in the business;
customer competitiveness in the branch of economics; financial condition of the
project customer; customer relationship with the software product life cycle (within
the vertical integration of the company and the customer), etc.
Hierarchy of three levels is built based on hierarchy analysis method (see Fig. 1).
Fig. 1. Hierarchy for determining the impact of project implementation on company develop-
ment
Experts evaluate the project impact on development for each factor. The results are
processed based on the expert method of pairwise comparisons [8]. As a result, a
pairwise comparisons matrix for projects is built. The implementation impact of the
IT project on the company development is defined as an aggregate indicator:
С j = kj с kj j J
, ,
kK J
с kj – the extent of influence of the IT project on the development of the company by
factor k; K J – a set of factors, к J =| K J |, к J – the number of factors influencing the
J , m J – the number of IT projects;
IT project on the company development; m =| J |
k – priority of the influence factor k, which is established on the basis of expert
j
assessments.
Thus, the impact indicator С j of the IT project implementation on the company
development will be considered as a criterion for the projects selection for inclusion
in the portfolio of IT company projects.
3 Stage 2. The Tactical Level of Formation for a Dynamic
Portfolio
3.1 The Projects Selection for the Formation of the Portfolio.
The project office forms project sets, so
С t = B t At −1
,
At −1 – the project set, the implementation of which, in agreement with customers, has
been moved from the interval (t–1) to the interval t, A0 = .
3.2 Iterative Procedure for Project Portfolios Forming
At each iteration l, on the set of candidate projects l С t (for l = 1 1С t = С t ) the portfo-
lio l BPt is formed. To do this, solve the following problem:
(1)
Dt = l btj x tj ⎯⎯→ max
{ xtj }
jl QСt
bt t
s x S x P ,
t
l bt
j
t
j j
t
j
(2)
jQС jQСt
xtj {0, 1} , (3)
jl QCt ;
l bt – The cost of the project from the set l C t ;
sj
l bt – The value of the utility function for the project from the set l C t ;
j
t
S btj – The planned costs of the IT company for the project implementation b j , jl QCt .
Project office analyzes portfolio projects l BPt and projects that are not included in
~
it l C~ t =l C t \ l BPt . The office offers project customers from the set lC t a variety to
change the project conditions (for example, cost, terms of the project, etc.). After the
approval procedure, the set of projects l +1С t =l C t \ lA t \ lAt (that are candidates for inclu-
sion in the portfolio at the iteration (l + 1)), are formed; l A t – the set of projects
whose customers agreed implementing them at the interval (t + 1) at the iteration l;
l t
A – the set of projects whose customers refused implementing them in the planning
~ ~ t l +1 t for which the conditions of
~
period. Projects from the set l C~ t =l C~ t \ lA t \ lAt , l C С
implementation have been changed are included in the set l +1С t .
For the set of projects, l +1С t problem (1)–(3) is solved. The iterative procedure
~
ends if there are no projects with modified conditions l C~ t = . Thus, as a result of the
iterative procedure, such sets (seeПомилка! Джерело посилання не знайдено.):
Fig. 2. Formation of the dynamic project portfolio for IT Company
l t
– Project portfolios BP = BP which will be implemented in the planning period ac-
t
t t t
cording the company policy IP = {P , R } , t = 1,T . These portfolios will make
up the dynamic IT company portfolio
T
BP = BPt .
t =1
– The set of projects whose customers agreed to postpone the implementing of
their projects to other years of the planning period
T
A = At ; At = l At .
t =1 l =1, 2...
– The project set whose customers refused implementing projects in the period
T
A = At ; At = l At .
t =1 l =1, 2...
The project office analyzes the income that the company will receive from imple-
mentation of the portfolios at each interval of the planning strategic period:
S It = s ctj
jQPt ,
s ctj – Project cost b j BP , j QP .
t t t
The implementation of this method allowed the project office to analyze the com-
pany capabilities, the prospects of its activities, rationally plan the company re-
sources, determine activity directions in the IT market, and adjust the development
policies of the company by year of the strategic period.
The business process of forming an investment portfolio is proposed to be present-
ed in the form of the following basic procedures [9] (seeПомилка! Джерело поси-
лання не знайдено.).
Information about IT
projects profitability
Information about Iterative
IT projects risk procedure for
Project Portfolio
Information about Forming
resources Define
applicants
for including Define
to portfolio impact on
Company
Development
Projects
Portfolios
forming
Selecting the
best IT
project
portfolio
Fig. 3. Business process for the formation of IT project portfolio
4 Some Implementation Results of the Dynamic Portfolio
Formation Method
The dynamic portfolio formation method was implemented in the practice of
Ukrainian IT companies. The following types of IT projects are distinguished.
Software development projects is the activity that produces new products but it is
not only expensive but also risky, for it is difficult to know beforehand what will
work or what will sell. Even if a product is successful, then its essential features will
eventually diffuse throughout the industry, or other firms will copy the product or the
process to become more competitive. Nonetheless, in spite of diffusion, research and
development does have its advantages. A firm that first develops a product or process
can protect it legally by obtaining patents on the new product or process, copyrights
on the original writing or other media developments, and trademarks. It also gains a
significant amount of time over other firms to develop economies of scale and to
market the new product.
Software extension projects are less risky because the investment of resources
takes place in the development of the existing and supposedly successful system, but
also less profitable, because the main income was received by the company that is-
sued the base product. However, the development and maintenance of interest in an
existing product allows the company to receive a stable, albeit not high, income.
Information system (IS) implementation projects are characterized by high initial
costs associated with the acquisition or development of their own product [10]. Re-
gardless of the specific model of action, choosing the right strategy is a decisive factor
for success in implementing the system. Typically, the “Big Bang”, “Step by Step”, or
“prototype implementation” strategies are applied. The “step by step” approach in-
volves the introduction of individual modules, processes or departments with a time
shift. Along with reducing risk and simplifying project management, this leads to an
increase in the timing of its implementation. In contrast, when choosing the “Big
Bang” strategy, existing software at the set point in time is completely replaced by the
new system. This is associated with increased risk and necessitates intensive testing;
on the other hand, interfaces to other systems are not needed, so the benefits of inte-
gration are immediately apparent. Another alternative is prototype implementation.
Infrastructure IT projects are aimed at creating a set of interconnected information
systems and services that ensure the functioning and development of enterprise in-
formation communication tools. Infrastructure projects are long-term, in terms of both
implementation terms and terms of return on investments made in them [11].
The proposed method was implemented for the company “Dolina”, which has in-
vestment activities. Over the past years, the company has been investing in the IT
industry. Dolina's interests mainly lays in the field of financing projects related to
software development projects, as well as to projects for implementing developed
information systems based on a “Step-by-Step” strategy.
A structural unit has been created that develops IT projects in the medical field.
The company's IT project portfolio at the start of planning totaled 11 projects. Typi-
cally, the project portfolio was formed for 1 year (see table 1).
Table 1. Old Portfolio structure.
Software devel- Software ex- IS implementa- Infrastructure IT
Number of opment projects tension projects tion projects projects
projects 9 0 2 0
In 2016, it was decided to develop a strategic program for the development of the
company for 4 years. As part of this program, development plans for all structural
units were developed. Using the suggested method, project portfolios were formed at
intervals of the planning period (see table 2).
Table 2. New Portfolio structure.
Software devel- Software ex- IS implementa- Infrastructure
Number of opment projects tension projects tion projects IT projects
projects 7 0 3 1
Due to the procedure for agreeing on the conditions for the implementation of pro-
jects by customers, the total revenue of the company was increased by 10% (see table
3), and the risk was reduced by 2.2%.
Due to the preliminary selection of projects based on the utility function and the
portfolio approval procedure, the profitability of the dynamic portfolio was increased
by 1.6%; reduced risks by 24.5% (see Помилка! Джерело посилання не знайде-
но.).
Table 3. Portfolios comparison.
Portfolio income, thousand $
t
Portfolio according to the old scheme Portfolio formed by this method
1 337.5 351.75
2 372.5 331.5
3 543.25 490.95
4 222.5 427.5
in total 1475.75 1601.7
Fig. 4. Portfolio Income Dynamics.
Two projects related to the development of new products were excluded from the
new portfolio, which reduced the company's risks. The released financial resources
were allocated for the implementation of the infrastructure project, which, in combi-
nation with the project for the implementation of already developed software, made it
possible to abandon interaction with third-party services and completely replaced the
old system. A small decrease in profitability in the second and third years associated
with the implementation of the infrastructure project was covered in the fourth year
due to the launch of the infrastructure project in production.
5 Conclusion
The formation of the IT company project portfolio within the confines of strategic
development planning is considered. The formation of the portfolio is carried out
based on the criterion of maximizing the utility function taking into account the estab-
lished company policy. Company policies during the planning period are adjusted
depending on changes in the situation on the IT market. The dynamic portfolio for-
mation method for some Ukrainian IT-companies was implemented. The implementa-
tion of this method allowed the project office to rationally plan the company re-
sources, determine activity directions in the IT market, and adjust the development
police of the company on the strategic period.
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