Portfolio management tools are designed to aid senior management in the development and analysis of portfolio strategies. However, most of the commercial portfolio optimization packages are relatively inflexible and unable to answer the key questions posed by senior management. In order for management to make decisions and set strategic objectives, these portfolio tools must first provide practical, goal-oriented output that is applicable and directly pertinent to the issues faced by the company. The output must provide information that allows decisions to be made that take into account optimization of all scarce resources (money, people, and time) in the context of an evolving longer-term portfolio.
This paper begins with a discussion of traditional approaches and recent advances in the area of portfolio management technology. Next, practical business reasons are provided as to why there is a current gap between portfolio analysis and portfolio management. Following a discussion of scarce resources and the prospect funnel, a project portfolio optimization example is provided for a company in the energy sector. The paper concludes with recommended approaches for managers to address the key business need for effective portfolio management.
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