**A Portfolio Theory Approach to**

Software Vendor Selection

Software Vendor Selection

**Marius RADULESCU ^{1}, Constanţa Zoie RADULESCU^{2
1 }**Institute of Mathematical Statistics and Applied Mathematics,

Casa Academiei Române,

13, Calea 13 Septembrie, Bucharest 5, RO-050711, Romania

mradulescu.csmro@yahoo.com

**I C I Bucharest**

^{2 }(National Institute for R & D in Informatics)

8-10 Averescu Blvd.

011455 Bucharest 1, Romania

radulescucz@yahoo.com

**Abstract: **The paper presents a minimum risk model, inspired from the financial portfolio theory, for the selection of a software vendor. The performance of the software products offered by potential software vendors is evaluated by several experts regarding several criteria. The minimum risk model has several constraints. One of the constraints is a complementarity constraint. Other constraints are connected with the available budget and the expected performance of the software products. A procedure for solving the minimum risk model is presented and a numerical example is analyzed.

**Keywords: **Software vendor selection, portfolio theory, minimum risk model, complementarity constraints, decision support.

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**CITE THIS PAPER AS**:

Marius RADULESCU, Constanţa Zoie RADULESCU, **A Portfolio Theory Approach to Software Vendor Selection**, Studies in Informatics and Control, ISSN 1220-1766, vol. 24 (4), pp. 379-386, 2015. https://doi.org/10.24846/v24i4y201502

**Introduction**

The task of selecting project portfolios is an important and recurring activity in many organizations.

Project selection is a process of strategic significance aimed at evaluating individual projects or groups of projects and then choosing to implement a set of them so that the objectives of the organization may be achieved. The project selection is a complex task. Many factors must be taken into account especially in the case of uncertainty or interrelationships among projects. There are many techniques available to assist in this process. The supplier selection problem is a special case of the project portfolio selection problem.

The software vendor selection problem is a special case of the supplier selection problem.

In the second section we present a literature review on the approaches to the project selection problem and to the software vendor selection problem.

In the third section we present an original binary mathematical programming model for the software vendor selection problem under risk and limited resources which is inspired from a previous model presented in Rădulescu and Rădulescu [23]. Our model includes several opinions belonging to a group of evaluator experts. These opinions generate the risk. The project risk is greater if experts’ opinions have a greater degree of dispersion. Since the projects do not have the same impact under every criterion and the relative importance of the criteria is vague definite, at least at the start of the decision process the solution of the real problem is not an easy task. In the fourth section is presented a numerical example for the minimum risk model that aims to find the best software vendor.

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