Risk Management of Contract Portfolios in IT Services: The Profit-at-Risk Approach.

Author List: Kauffman, Robert J.; Sougstad, Ryan;

Journal of Management Information Systems, 2008, Volume 25, Issue 1, Page 17-48.

Information technology (IT) services providers are exposed to exogenous risks faced by the industry as a whole, and endogenous risks from their current portfolio of IT contracts. This exposure may lead to cost overruns or legal responsibility for service-level breeches. Providers can leverage information about their risk positions implied by their IT services contract portfolios to gain strategic advantage over their competitors. We build theory in support of a new construct, profit-at-risk, for evaluating the trade-offs between contract profitability and service-level risk, stemming from financial economics theory and models. We simulate an IT services contract portfolio, and show how managers can reduce organizational risk by forgoing profit-maximizing contracts in lieu of more conservative service-level agreements, yet still achieve high returns. Our approach provides decision support for ex ante contract evaluation and negotiation, and a means to conduct ex post efficiency evaluation. It also aligns IT service management with best practices in financial management.

Keywords: efficient frontier; financial economics; IT contracts; IT services; managerial decision making; mechanism design; portfolio management; profit-at-risk; service science; value-at-risk

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List of Topics

#264	0.213	risk risks management associated managing financial appropriate losses expected future literature reduce loss approach alternative mitigate failures failure cause mitigation
#70	0.155	contract contracts incentives incentive outsourcing hazard moral contracting agency contractual asymmetry incomplete set cost client parties examine effort structures double
#211	0.143	service services delivery quality providers technology information customer business provider asp e-service role variability science propose logic companies especially customers
#57	0.107	decision support systems making design models group makers integrated article delivery representation portfolio include selection effective claims decisions rationale various
#237	0.073	boundary practices capacity new boundaries use practice absorptive organizational technology work field multiple study objects actors actor theory practical spanning
#223	0.064	insurance companies growth portfolios intensity company life portfolio industry newly vulnerable terms composition operating implemented factors asset focus disaggregation choices