Four Goals in Portfolio Management

Four Goals in Portfolio Management

There are four common denominators across businesses when it comes to portfolio management: four macro or high level goals. The goal you wish to emphasize most will in turn influence your choice of portfolio methods. These four broad or macro goals are:

Value Maximization:

Here the goal is to allocate resources so as to maximize the value of your portfolio. That is, you select projects so as to maximize sum of the values or commercial worth’s of all active projects in your pipeline in terms of some business objective (such as long term profitability, EVA, return-on-investment, likelihood of success, or some other strategic objectives).

Balance:

Here the principal concern is to develop a balanced portfolio – to achieve a desired balance of projects in terms of a number of parameters; for example, the right balance in terms of long term projects versus short ones; or high risk versus lower risk projects; and across various markets, technologies, product categories, and project types (e.g., new products, improvements, cost reductions, maintenance and fixes, and fundamental research)

Strategic Direction:

The main goal here is to ensure that, regardless of all other considerations, the final portfolio of projects truly reflects the business’s strategy – that the breakdown of spending across projects, areas, markets, etc., is directly tied to the business strategy (e.g., to areas of strategic focus that management has previously delineated); and that all projects are “on strategy”.

Right Number of Projects:

Most companies have too many projects underway for the limited resources available [7,8,9,10]. The result is pipeline gridlock: projects end up in a queue; they take longer and longer to get to market; and key activities within projects – for example, doing the up-front homework – are omitted because of a lack of people and time. Thus an over-riding goal is to ensure a balance between resources required for the “Go”...