Concepts
Achieving strategic portfolio objectives and optimizing resource utilization often require balancing and prioritizing portfolio components. Balancing and prioritizing are crucial factors that determine the effectiveness of the portfolio management process. It entails making selections that align with the organization’s strategic objectives, availability of resources, and the potential return of each component.
For example, an organization may have a portfolio that comprises numerous projects, each of which contributes to the strategic objectives in varying proportions. These projects may have different resource needs, risk profiles, and potential returns. A judicious approach to portfolio balancing and prioritization would be to balance the returns, risks, and strategic alignment of the projects. The portfolio management professional must aim to allocate resources in a way that maximizes the returns and aligns with the strategic objectives, while at the same time managing the risks effectively.
Established Criteria and Methods in Portfolio Balancing and Prioritization:
Multi-Criteria Decision Analysis (MCDA) is a popular technique used to balance and prioritize portfolio components. It aids in evaluating and comparing various alternatives based on multiple criteria.
For example, an organization may want to assess its projects based on criteria such as expected returns, risk levels, alignment with strategic objectives, and resource requirements. Using the MCDA, the organization can score each project against each criterion and then determine an overall score. After identifying the best-ranking projects based on these accumulated scores, resources can be effectively allocated.
Scoring and Ranking is another method by which organizations can balance and prioritize their portfolio components. In this method, each project or program is scored on various criteria then ranked based on their total scores. The one with the highest total is given topmost priority while the least ranked gets lesser priority.
| Projects | Expected Returns | Risk Levels | Alignment |
|---|---|---|---|
| A | 70 | 30 | 80 |
| B | 80 | 40 | 70 |
| C | 60 | 20 | 90 |
In the above example, project A received a total score of 180, project B 190 and project C 170. Based on these scores, project B would be given the highest priority, followed by project A and then project C.
Achieving Strategic Portfolio Objectives:
Established methods and criteria for balancing and prioritizing portfolios effectively support the achievement of strategic portfolio objectives. By focusing on strategic alignment, risk, and returns, these methods ensure that resources are allotted to those components contributing most to the portfolio objectives. Additionally, these methods help to maintain a balanced portfolio as per market conditions and organizational dynamics, enhancing the portfolio’s resilience and performance.
Conclusion:
Strategic portfolio management involves maintaining a delicate balance between portfolio components and ensuring their alignment with organizational objectives. Applying established criteria and mechanisms such as Multi-Criteria Decision Analysis and Scoring facilitate better decision-making and thereby enhance portfolio performance.
Answer the Questions in Comment Section
True or False: The balance portfolio process includes identifying, categorizing, evaluating and prioritizing portfolio components.
Answer: True
Explanation: The balance portfolio process includes all these steps to ensure efficient resource usage and to achieve strategic goals.
In the balance portfolio process, components should be prioritised based on which of the following?
- a. The size of the component
- b. The complexity of the component
- c. The strategic objectives related to the component
- d. The color of the component’s file folder
Answer: c. The strategic objectives related to the component
Explanation: Components should be prioritised based on the strategic objectives they satisfy, not their size or complexity.
True or False: All components within a portfolio should receive equal resources for optimal balance.
Answer: False
Explanation: Not all components require or benefit from equal resources. It’s essential to prioritize and allocate resources based on strategic objectives.
What is the main goal of using established criteria and methods for portfolio balancing?
- a. To eliminate components
- b. To add complexity
- c. To optimize resource utilization
- d. To impress stakeholders
Answer: c. To optimize resource utilization
Explanation: The principal goal of portfolio balancing is to optimize resource utilization and achieve strategic objectives.
Multiple Select: Which benefits can be achieved by balancing a portfolio and prioritizing its components?
- a. Effective risk management
- b. Optimal utilization of resources
- c. Increasing profit margins
- d. Achieving strategic objectives
Answer: a. Effective risk management, b. Optimal utilization of resources, d. Achieving strategic objectives
Explanation: Balancing portfolios and prioritizing components properly can help manage risk, utilize resources optimally, and achieve strategic objectives effectively.
True or False: Portfolio balance does not need frequent reviews and adjustments as long as the initial setup was properly made.
Answer: False
Explanation: Portfolio management is an ongoing process, requiring frequent reviews and adjustments to reflect changes in business environment and strategic objectives.
In order to achieve strategic portfolio objectives, what should be prioritized?
- a. Projects that are easiest to complete
- b. Smallest projects or components
- c. Components that align most closely with strategic goals
- d. The newest projects
Answer: c. Components that align most closely with strategic goals
Explanation: Prioritization should be based on strategic alignment rather than size or recency of the components.
True or False: The use of established criteria and methods for prioritizing portfolio components ensures complete objectivity and eliminates all possible bias.
Answer: False
Explanation: Although established criteria and methods reduce bias and subjective judgements, it’s almost impossible to completely eliminate all potential bias.
Multiple select: Effective portfolio balancing requires careful consideration of which of the following?
- a. Business strategy
- b. Organizational resources
- c. Market trends
- d. Stakeholder expectations
Answer: a. Business strategy, b. Organizational resources, c. Market trends, d. Stakeholder expectations
Explanation: Portfolio balancing entails consideration of business strategy, available resources, market trends, and stakeholder expectations to deliver maximum value.
True or False: Portfolio balancing is about choosing the right mixture of risk and return.
Answer: True
Explanation: Balancing a portfolio is about weighing risks against expected returns in order to achieve the organization’s strategic objectives.
What is the primary benefit of balancing a portfolio using established criteria and methods?
- a. Encouraging informal decision-making
- b. Increasing the portfolio’s risk level
- c. Enhancing the predictability of portfolio outcomes
- d. Increasing project complexity
Answer: c. Enhancing the predictability of portfolio outcomes
Explanation: Portfolio balancing through established methods enhances the predictability of portfolio outcomes, helping to achieve strategic portfolio objectives.
Great insights on balancing and prioritizing portfolio components. Really clear and concise!
Can anyone explain the significance of the Weighted Scoring Model in portfolio prioritization?
Nice blog post!
Would a Risk Matrix be more effective than the Weighted Scoring Model for risk-based prioritization?
Does anyone have practical examples of using Delphi technique for portfolio prioritization?
Thanks for the amazing post!
I think this article could have covered Earned Value Management (EVM) in more detail.
What are the advantages of using the Analytical Hierarchy Process (AHP) in portfolio management?