RISK-RETURN ANALYSIS IN FINANCIAL INVESTMENTS: INSIGHTS FROM HDFC LIMITED

Abstract

In order to accomplish the following, a portfolio of new product development initiatives is chosen using Risk & Return Analysis:
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Maintain a steady stream of income
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Raise the portfolio's worth
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Back up the business's approach
The upper echelons of management are accountable for conducting risk and return analyses for their respective companies or departments. Managing the product pipeline and making choices on the product portfolio are responsibilities of this team, which meets often and might be referred to as the Product Committee. The organization's stage-gate assessments are often carried out by the same personnel.
Formulating a product strategy (including target audiences, goods, services, methodology, competitive focus, etc.) is an appropriate first step. Step two is to learn about the available funds or budget to use as a benchmark for the portfolio. Thirdly, it is important to evaluate each project based on its potential benefits, resources needed for investment, dangers, and any other relevant criteria.
When deciding between goods, the relative importance of the objectives differs from one business to the next. However, businesses need to strike a balance between several objectives, such as profit against risk, innovation versus improvement, strategy fit versus reward, market share versus product line, and long-term versus short-term thinking. The Risk & Return Analysis procedure has made use of many methods:
1.
Models used by heurists
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Methods for scoring
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Methods that use images or maps
Using heuristics or quantitative models, the first Risk & Return Analysis approaches optimised the profitability or financial returns of projects. But achieving portfolio balance and coordinating it with the organization's goal were neglected in this method. Techniques for scoring take into consideration investment needs, profitability, risk, and strategy alignment when weighting and scoring criteria. One potential drawback of this method is that it may place too much focus on financial metrics and not be able to optimise the combination of projects.