Create portfolio scenarios (what-if analysis) by reviewing components against prioritization criteria and using analysis techniques (e.g., options analysis, risk analysis, SWOT analysis, financial analysis) in order to evaluate and select viable options.

Creating portfolio scenarios, or what-if analysis, is a critical part of portfolio management. By reviewing portfolio components against prioritization criteria and employing various analysis techniques, portfolio managers are able to evaluate and select viable options. This makes it easier to manage resources, mitigate risks, and realize organizational objectives. Such an approach is a fundamental piece of the Portfolio Management Professional (PfMP) exam and a critical skill for any aspiring or advanced portfolio manager.

1. Understanding Scenario Creation

Scenario creation involves assessing variations within a project portfolio. It is a form of what-if analysis. For instance, what would be the impact on the portfolio if a particular project was delayed or if additional resources were allocated somewhere else? This type of scenario planning allows for better strategic decision making and risk management.

2. Reviewing Components against Prioritization Criteria

The first step in this process of creating portfolio scenarios is reviewing components against prioritization criteria. This involves the collection and analysis of data related to each project within the portfolio, and comparing this against the established priority of each initiative.

For example, suppose there are two projects in a portfolio: one is a high-priority project focusing on new product development with the objective of increasing market share, and the second is a lower-priority project focusing on improving existing infrastructure. The portfolio manager needs to assess each project against its priorities, considering its current status, dependencies, constraints, potential risks, and the potential benefits that it offers to the organization.

3. Using Analysis Techniques

After establishing the project’s prioritization criteria, portfolio managers then carry out an analysis to evaluate and select their options. Here are some common techniques used:

• A. Options Analysis: This is used to evaluate multiple available options and scenarios based on set criteria. Each alternative is quantified using the same metrics to enable comparison and decision making. For example, when considering the development of a new product, options may be compared on the basis of cost, time for development, market potential, and risk.
• B. Risk Analysis: This is performed to understand the uncertainties in a portfolio. It involves identifying potential risks, assessing their impact and likelihood, and putting in place measures to mitigate these risks. This can help in choosing portfolios with a desirable risk-reward balance.
• C. SWOT Analysis: With SWOT analysis, managers assess Strengths, Weaknesses, Opportunities, and Threats. It provides a comprehensive view of the current status and potential future path of a project.
• D. Financial Analysis: Financial analysis allows an organization to gauge the economic feasibility of a portfolio. This may include ROI analysis, net present value (NPV) calculation, and calculating internal rate of return (IRR).

4. Evaluating and Selecting Viable Options

After running these analyses, portfolio managers can evaluate and select the most viable options. These chosen scenarios present the best balance among potential return, risk, and alignment to strategic goals.

In all these processes, it is crucial to know tools have their limitations and should not be used in isolation. Combining these tools and tailoring them to the organization’s strategic goals will yield the best results.

Conclusion

In conclusion, creating portfolio scenarios through reviewing components against prioritization criteria and using various analytical techniques is a powerful way for portfolio managers to evaluate and select the best options for their companies. By doing this, they’re better able to manage resources, control risks, and support the organization’s broader strategic objectives. This is not only a vital part of preparing for the PfMP exam, but an indispensable skill for any portfolio management professional.