Portfolio management (PM) techniques are the systematic methods for analyzing or evaluating a set of projects or activities for achieving the optimal balance between stability and growth, risks and returns; and attractions and drawbacks. It focuses on achieving this balance by using the limited resources available in best possible manner.
Common aspects of Portfolio management (PM) techniques
· The individual projects are assessed and the results are balanced. Thus PM involves appropriate single project evaluation techniques for achieving the desired balance.
· It is mandatory to examine the every project in the similar fashion for ensuring the validity and consistency of the input data.
Portfolio Management (PM) Techniques
There are various techniques that are used for supporting the portfolio management process:
· Heuristic models
· Scoring techniques
· Visual or mapping techniques
Portfolio Management involves selection of a portfolio of new product development projects for achieving the below mentioned goals:
· Maximizing the profitability
· Maximizing the value of the portfolio
· Providing optimal balance
· Supporting the strategy of the enterprise
Project Portfolio Management Techniques comprises of complete spectrum of project portfolio management (PPM) functions. It includes selecting projects and their successful execution by creating project-friendly and formalized environment.
The efficient Portfolio Management is ensured by the senior management team of an organization which conduct regular meetings for managing the product pipeline and making decisions related to the product portfolio.
Activities of Portfolio management
· Creating a product strategy including products, strategy approach, markets, customers, competitive emphasis, etc
· Understanding the budget or resources available for balancing the portfolio
· Assessment of project for investment requirements, risks, profitability and other suitable factors
The portfolio management techniques must be used for the proper balance of following goals
· Risk vs. profitability
· New products vs Improvements
· Strategy fit vs Reward
· Market vs Product line
· Long-term vs short-term
Initially, the Portfolio Management techniques are used for optimizing the financial returns or projects’ profitability by applying heuristic or mathematical models. However, this approach fails to address the need to balance the portfolio as per the organization’s strategy. Later, Scoring techniques came into picture when these are used for weighting and scoring criteria for considering factors such as profitability, risk, investment requirements, and strategic alignment.
The drawbacks of these techniques include inability to optimize the mix of projects and over emphasis on financial measures. Mapping techniques are widely used for visualizing a portfolio’s balance by graphical presentation in the form of a two-dimensional (2 D) graph that displays balance between two factors as mentioned below.
· Marketplace fit vs. product line coverage
· Risks vs. profitability
· Financial return vs. probability of success
The development of new product needs significant investments and Portfolio Management has become widely used tool for making strategic decisions regarding the product development and the investment of company resources. The revenues are based increasingly on new products that are developed during last one to three years. Therefore, the company’s profitability and its continued existence depend on the portfolio decisions.