New visualization techniques for dynamic correlation in service portfolio management

Abstract

This article suggests new visualization methods for decision support within a pricing process involving long-term service-delivery contracts. Services such as IT support, customer reservations, or accounting, are often provided from one or more remote service-delivery centers. The process of pricing multi-year service agreements includes a step of matching requirements to skilled resources. When a contract is signed, there is an increase or shifting of investment to the corresponding delivery centers. In this article we treat the delivery centers as a portfolio of assets of the service provider. Cost and other risk characteristics of these portfolios vary with time at a pace significantly slower than that of stock market equities, but small changes significantly affect the long-term profitability of service deals. We discuss new techniques based on correlation trends for managing such portfolios to reduce risk and improve cost estimates. In particular, we propose a relatively simple portfolio visualization technique that is designed to facilitate decisions about matching deals to resources and reallocating investments in these resources. Our approach could also be applied in other contexts such as the management of investment in a chain of hotels. © 2010 Macmillan Publishers Ltd.