Posted: February 27th, 2022

IT Capital Planning and Portfolio Management

IT Capital Planning and Portfolio Management
Purpose
IT capital planning and portfolio management involves a systematic approach to selecting, managing, and evaluating an organization’s investment in information technology. This paper covers the Microsoft Corporation IT capital planning and portfolio management. To ensure that the most effective process concerning the selection, managing, and evaluation of Microsoft information technology investment, the paper covers five major sections. They include the organization context, IT investment assessment instrument, proposal, and description of different IT investments, application of assessment instrument, and recommendation of one IT investment proposed for the company.
Organization Context
Microsoft Corporation was founded by Bill Gates and Paul Allen as Traf-O-Data in 1975 before adopting Microsoft as the company name in 1975. Currently, Microsoft has grown into a multinational technology company. The company headquarter is located in Redmond, Washington, with multiple offices and operation centers across the globe. Microsoft’s business operations include developing manufactures, licenses, supports, and selling computer software, personal computers, consumer electronics, IT-related services. Some of Microsoft’s best-known software include Microsoft Windows, Microsoft Office Suite, the Edge Web, and Internet Explorer. Microsoft has also produced various hardware products, including the Xbox video game consoles and the Microsoft Surface lineup of touchscreen personal computers.
Microsoft’s mission is to empower every person and every organization on the planet to achieve more. The company’s mission statement forms the basis that drives the company everything it does by emphasizing the company’s passion for empowering both the people and the institution they develop. The opportunities that are Microsoft currently has been associated with five sectors. The first sector is healthcare, whereby the power of Azure is currently being utilized by Dr. Amana Randles at Duke University in conducting simulations required in helping patients to have more access to critical ventilators during the COVID-19 pandemic. The use of Azure provides an opportunity for the company to enhance the tech-based application in the health sector (Nadella, 2020). The other opportunity is associated with the public sector. For instance, in California, almost 9 percent of COVID-19 infrastructure has been build using GitHub and Azure DevOps, which has helped to reduce the time involved to stand up a website to three hours from 18 months. Microsoft also has opportunities in the telecom sector.
Microsoft’s Power Platform has been utilized by two analysts at T-Mobile in building an app that enables the company to keep retail associates employed and customers, which supported the company in dealing with the COVID-19 crisis. Microsoft products are also being utilized in the retail sectors. For instance, Patagonia has deployed Microsoft’s Dynamics 365 in inventory shipping direct to their customers from stores or warehouses, which has reduced a load of all locations by optimizing the sending of a single shipment to customers. The opportunities of Microsoft are also in the education sector. For instance, with the COVID-19 pandemic, the University of Bologna in Italy moved over 90 percent of their courses that accommodate approximately 80,000 students online to Microsoft Teams (Nadella, 2020). The last opportunity of Microsoft is associated with the sports sector. For instance, the NBA has been utilizing Microsoft technology of virtualization to reimagine the game experience, which has enabled the fans to feel they are together while they are in their homes while the players in the arena virtually experience the energy of cheering fans.
As software and cloud computing plays a significant role across the industrial sector and worldwide, Microsoft is expected to support customers accelerate their digital transformation by continuous development of complete and intelligent solutions. For to achieve the goal of developing complete and intelligent solutions, Microsoft plans to invest significant resources that will enable them to transform the workplace towards delivering new modern and modular business applications capable of improving how people communicate, learn, collaborate, interact, and play with each other (Nadella, 2020). Microsoft investments aim to build and run cloud-based services that will provide new opportunities and experiences for individuals and businesses. The company also aims to use AI to drive insights and act on behalf of the company and the customers in service provision and supporting customers to interpret and understand their needs.
Microsoft operating segments face competition from different companies. Microsoft’s s Azure is one of their major products that face competition from various companies, including IBM, Amazon, Oracle, VMware, and Google. Microsoft also faces competition in terms of security offerings for their Enterprise Mobility + Security product from a range of vendors that offer security solutions and identity solutions (Form 10-K, 2020). Microsoft server products also face stiff competition from companies such as Oracle, Hewlett-Packard, and IBM that offer various server operating systems and applications. Microsoft also faces competition in providing enterprise-wide computing solutions and point solutions from various commercial vendors that provide middleware technology platforms, hosting, databases, connectivity applications, security, and e-business servers. Data warehousing, databases, and business intelligence solutions offered by Microsoft face competition from products of other well-established companies, such as IBM, SAP, and Oracle.
Microsoft faces various risks, including digital safety and service misuse, whereby third parties misuse the consumer services and the company enterprise services to disseminate harmful or illegal content. The inclusion of IoT in products’ development comes with security, privacy, and execution risks (Form 10-K, 2020). The company also faces risks such as excessive outages, disruption of online services, and data loss that may result in the company’s inability to maintain adequate operations infrastructure. The other risk factor for Microsoft is associated with catastrophic events or geopolitical conditions which may result in system or operational disruption or failure, such as cyberattack, weather events, and a major earthquake.
IT Investment Assessment Instrument
IT investment assessment instrument deployed in the deployment of the investment analysis of Microsoft Corporation is the Net Present Value (NPV). NPV is defined as the difference between the present values of the cash inflows and the present values of the cash outflow over a period of time. NVP is an essential instrument applied by companies in assessing capital budgeting and investment planning by analyzing the profitability of the proposed investment or project (Ballinas, 2020). When a company IT investment assessment presents a positive NPV, it means the proposed investment is worthwhile. When the IT assessment presents an NPV of 0, it means the cash inflow of the company equals the cash outflow. However, a negative NPV of the IT investment means that the proposed investment is not good for the company.
All investments include cash outflows and cash inflows, whereby the cash that is required to make the investment creates an expectation of a return. The company can assess whether the cash outflows are less the cash inflows to aggregate the cash flow before engaging in the proposed investment. The occurrence of cash flows over a period of time enables the company to know due to the time value of money that each cash contains a certain value today. Therefore, to obtain the difference in the cash inflows and cash outflows, the company discounts each cash flow to a common point in time.
The analysis of the IT investment for Microsoft based on the NVP provided in this paper incorporates assumptions about the future, but the mathematics behind it is automated. The NVP IT assessment instrument involves six steps. The first step conducted is the pull cash flow statement from SEC as provided in the table below.
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Operating Cashflow $52,185,000 $43,884,000 $39,507,000 $33,325,000
Capital Expenditure $13,925,000 $11,632,000 $8,129,000 $8,343,000
Free Cash Flow.1 $38,260,000 $32,252,000 $31,378,000 $24,982,000

The second step in the NVP assessment instrument is calculating the cash flow growth of the company year-over year, which provide the overall idea of the Microsoft manages its cash flows. The average growth of Free Cash Flow (FCF Mean Growth) over the past years is used in forecasting the future Free Cash Flows. To obtain the FCF Average Growth, the following assumptions were adopted.
a. If FCF Mean Growth is greater than 20%, then a 10% growth is assumed over the next 10 years.
b. If FCF Mean Growth is between 10 and 20%, then a 7% growth is assumed over the next 10 years
c. If FCF Mean Growth is between 5 and 10%, then a 3% growth is assumed over the next 10 years
d. If FCF Mean Growth is between 0 and 5%, then a 1% growth is assumed over the next 10 years
e. In any other case we will suppose a flat growth
Therefore, the FCF Average Growth is 16%
While, the FCF Growth to Forecast Cash Flows is 7%
And the projection of Free Cash Flows is as provided in the table below.
Year MSF
2020 $38,260,000
2021 $40,938,200
2022 $43,803,874
2023 $46,870,145
2024 $50,151,055
2025 $53,661,629
2026 $57,417,943
2027 $61,437,199
2028 $65,737,803
2029 $70,339,449t

The third step involves calculation of weighted average cost of capital for each security. The step incorporates two forms of calculations, including the Beta and Cost of Equity.
Beta Calculation
Beta is calculated using the formular:
Beta = covariance (StockMonthly,MarketMonthly) /var (MarketMonthly
The obtained for the stock is 1.15.
Cost of equity for the stock is calculated using the formula:
CostofEquity = RiskFreeRate/100 + Beta ∗ (MarketRiskRate − RisfkFreeRate) /100
The cost of equity then is 14%
The fourth involves the assessment of the tax rates, equity and debt of the company from balance sheet and income. The other step of the NVP assessment instrument is calculating weighted average cost of capital (WCC) to estimate the cost o debt of 8%. The formula of obtaining the WACC is:
WACC = (equity/(equity+debt) ∗ costofequity + (debt/(equity+debt)∗Rd)∗(1−taxes))
The WACC for the stock obtained is 9.3%.
The last step involves calculating the net present value for each stock through WACC, the projected Free Cash Flow, and perpetual rate.
Description of DIFFERENT IT Investment Proposals
The IT investments that are proposed for Microsoft include OpenAI, Analytics Cloud, and Azure SQL Database Edge. The OpenAI investment has based the development of a supercomputing and cloud computing muscle on enhancing the company’s preparation towards building artificial general intelligence (AGI). The OpenAI will enable Microsoft to train new AI technologies for its Azure cloud computing services. Investing in OpenAI will also enable Microsoft to achieve the development of supercomputing hardware that are required in the developing AGI machines that have high intelligence and capacity to quickly learn how human beings behave and do things (Giles, 2020). OpenAI has already engaged in various developments in the IT sector, including the technology in the games like Dota 2 and language AI that is capable of supporting employee functionality. The investment will enable Microsoft to keep pace with its competitors such as Google, Amazon, and Facebook in terms of AI development.
The other IT investment that is proposed for Microsoft is the development of augmented analytics software. As the company work towards achieving its mission, investing in analytics cloud technology will be a major boost to business intelligence and enterprise planning workflows, which will be augmented by the analytics’ powerful AI and machine learning technology. The augmented analytics cloud software will be able to conduct to assist business through conversational analytics, whereby it helps the decision making process and solving problems by explaining concepts provided instantly in natural language. The augmented analytics also contain automated machine learning that offers self-service by automatically revealing insights and spot hidden patterns and relations in datasets. It also has intelligent predictive analytics, which supports to automate sophisticated predictive analysis using the machine learning algorithm that helps the proposed technology to predict outcomes and forecast based on the set of data provided.
The last IT investment recommendation made to Microsoft is the Azure SQL Database Edge. Investing in Azure SQL Database Edge will enable the company to address the unique requirements for data security and analytics on edge. The offering will be able to support Arm and x64-based interactive devices and edge gateways. The technology has various capabilities that are optimized or edge scenarios, including low latency analytics, which is achieved by combining the data streaming and time-series using machine learning features (White, 2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers). Azure SQL Database Edge provides security to data at rest and in motion on edge devices and edge gateways by managing security policies and automatically updating central management portal like the Azure IoT Central. Azure SQL Database Edge also enables the ability to develop and deploying applications anywhere by having a common programming surface area that includes Azure SQL Database, SQL Server on-premises, and Azure SQL Database Edge.
Recommendation
This paper recommends that Microsoft invest in the Analytics Cloud augmented. The recommendation is based on the vast features that the technology comes with, which creates an assurance of great returns once deployed. The recommended IT technology is characterized by natural language processing, AI power data discovery, visualization, analysis, and prediction. Some of the major features of the Analytics Cloud that make it a valuable investment include the search to insight feature, which allows the user to interact with their data using conversational AI technology and natural language processing (NLP). The use of the natural language query (NLQ) enables the system to search and analyze the user data. The other feature of the Analytics Cloud is smart insights, which offers the user instant context and explanation. The smart insights feature is enabled by sophisticated algorithms that support data analysis to provided or reveal top contributors behind values, understanding factors related to PKIs, and variances. The proposed technology also has a smart discovery feature that supports the use of automated machine learning models to reveals and understands the hidden patterns in datasets. The feature enables automatic generation of data visualizations and comprehensive data stories that surface significant insights, such as trends, outliers, and key influencers that support decision-making and problem-solving processes. The last feature that supports the recommendation of the Analytics Cloud is smart prediction, which enables the prediction of outcomes and generation of forecasts. The proposed technology achieves the prediction and forecasting using three machine learning algorithms. They include classification, time-series analysis, and regression that automate the sophisticated predictive analysis.
Reference
Ballinas, H. (2020). Company Valuations through NPV Method. RPubs. Retrieved from https://rpubs.com/hballinas/574395
Form 10-K. (2020). Microsoft Corporation. Retrieved from https://www.sec.gov/Archives/edgar/data/789019/000156459020034944/msft-10k_202006 – Write a paper; Professional research paper writing service – Best essay writers30.htm
Giles, M. (2020). Microsoft is investing $1 billion in OpenAI to create brain-like machines. MIT Technology Review. Retrieved from https://www.technologyreview.com/2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers/07/22/238798/microsoft-is-investing-1-billion-in-openai-to-create-brain-like-machines/#:~:text=Microsoft%20is%20investing%20%241%20billion%20in%20OpenAI%20to%20create%20brain%2Dlike%20machines,-Category%3A&text=The%20AI%20lab%20gets%20to,artificial%20general%20intelligence%20(AGI)
Nadella, S. (2020). Annual Report 2020. Microsoft. Retrieved from https://www.microsoft.com/investor/reports/ar20/index.html
White, J. (2019: 2024 – Online Assignment Homework Writing Help Service By Expert Research Writers). Intelligent edge innovation across data, IoT, and mixed reality. Microsoft. Retrieved from https://azure.microsoft.com/en-us/blog/intelligent-edge-innovation-across-data-iot-and-mixed-reality/
Appendixes
Microsoft Organization Chart

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