Integrated Portfolio Analysis: Return on Investment and Real options Analysis of Intelligence Information Systems (Cryptologic Carry On Program)

Abstract

This paper introduces the Knowledge Value Added/Real Options (KVA+RO) valuation framework for use in information technology (IT) portfolio management within the Navy. KVA+RO is designed to support information technology (IT) portfolio investment decisions. It is intended to empower decision-makers by providing performance-based data and analyses like the Return On Investment (ROI) on individual projects, programs and processes within a portfolio of IT investments. Using KVA historical data as a platform, potential strategic investments are evaluated with real options analysis. The first section discusses limitations of existing ROI approaches. The paper then presents KVA+RO methodology and framework, reviews core concepts, underlying assumptions, metrics and potential applications to the IT portfolio management problem in the DoD. In the final section, the KVA+RO valuation framework is applied to Naval Cryptologic Carry On Program (CCOP) systems, that are used in the Intelligence Collection Process (ICP), for evaluation of signal intelligence gathering system investments.