Research shows clearly that businesses that feature a systematic portfolio management process, regardless of the specific approach, out-perform the rest. Having some portfolio management approach in place seems to be even more important than the details of which tools and metrics one chooses.
However, businesses’ whose portfolios are selected by relying heavily on financial tools as the dominant portfolio selection model sometimes fare worse than those that rely heavily on other kinds of tools, because financial tools can yield an unbalanced portfolio of lower-value projects and projects that lack strategic alignment. By contrast, strategic methods, correctly applied, do produce a strategically aligned and balanced portfolio.
It is ironic that the most rigorous techniques—the various financial tools—yield the worst results, not so much because the methods are flawed but simply because reliable financial data are often missing at the very point in a project where the key project selection decisions are made. Often, reliable financial data (expected sales, pricing, margins, and costs) are difficult to estimate in many cases because the project team simply has not done its homework or makes highly optimistic projections in order to secure support for its project. (See References 1-3)
The portfolio management solution discussed here is an objective process that enforces a rational rather than emotional (or political) approach to portfolio selection, helping to ensure that the selected investments are aligned with the organization’s strategic priorities and will maximize return on investment.
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