PORTFOLIO MANAGEMENT

Abstract

Portfolio Management is used to select a portfolio of new product development
projects to achieve the following goals:
• Maximize the profitability or value of the portfolio
• Provide balance
• Support the strategy of the enterprise
Portfolio Management is the responsibility of the senior management team of an
organization or business unit. This team, which might be called the Product
Committee, meets regularly to manage the product pipeline and make decisions about
the product portfolio. Often, this is the same group that conducts the stage-gate
reviews in the organization. A logical starting point is to create a product strategy -
markets, customers, products, strategy approach, competitive emphasis, etc. The
second step is to understand the budget or resources available to balance the portfolio
against. Third, each project must be assessed for profitability (rewards), investment
requirements (resources), risks, and other appropriate factors.
The weighting of the goals in making decisions about products varies from company.
But organizations must balance these goals: risk vs. profitability, new products vs.
improvements, strategy fit vs. reward, market vs. product line, long-term vs. shortterm.
Several types of techniques have been used to support the portfolio management
process:
• Heuristic models
• Scoring techniques
• Visual or mapping techniques
The earliest Portfolio Management techniques optimized projects' profitability or
financial returns using heuristic or mathematical models. However, this approach paidlittle attention to balance or aligning the portfolio to the organization's strategy.
Scoring techniques weight and score criteria to take into account investment
requirements, profitability, risk and strategic alignment. The shortcoming with this
approach can be an over emphasis on financial measures and an inability to optimize
the mix of project.