Ashish

Portfolio Management

The portfolio theory was originated by Markowitz in the early 1950's. and further developed in the 1960's by Sharpe.

Based on the principle "Don’t put all your eggs in one basket." the investors knew intuitively that it was smart to diversify their portfolio. Markowitz was the first to quantify risk and demonstrate quantitatively why and how portfolio diversification works to reduce risk and optimize return for investors.

Markowitz has also introduced the concept of an "efficient portfolio". An efficient portfolio is one which has the smallest attainable portfolio risk for a given level of expected return (or the largest expected return for a given level of risk).

Portfolio Management (PM) is the management of selected groupings of investments using integrated strategic planning, integrated architectures, measures of performance, risk management techniques, transition plans, and portfolio investment strategies. Usually, PfM is focused on IT-related investments in both the commercial sector and in the Federal Government, but in an ideal world the portfolio should be inclusive of all investments: people, processes and technology. In the simplest and most practical terms, portfolio management focuses on five key objectives:

1. Defining goals and objectives — clearly articulate what the portfolio is expected to achieve. Questions to consider: What is the mission of the organization and how does IT support and achieve that mission?

2. Understanding, accepting, and making tradeoffs — determine what to invest in and how much to invest. Questions to consider: Which initiatives contribute the most to the mission?

3. Identifying, eliminating, minimizing, and diversifying risk — select a mix of investments that will avoid undue risk, will not exceed acceptable risk tolerance levels, and will spread risks across projects and initiatives to minimize adverse impacts. Questions to consider:  When and how do you terminate a legacy system? At...