This is start of a ‘back of an envelope’ guide to portfolio management.
Portfolio management is the set of activities that seek to find and maintain the optimum current and future balance of R&D projects to support the busines strategy.*
I wrote this almost 10 years ago but exactly the same problems face companies today.
There are many approaches to selecting individual projects such as simple project attractiveness ratings, however selecting a set of projects (or portfolio) requires you to:
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nntake account of overlaps and common resource requirements between projects
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nfollow the direction provided by the overall strategy and the technology strategy
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ndevelop an iterative process refining the portfolio to find the optimum balance between available projects and the strategic direction
When you begin to look at a portfolio, it is important to find simple ways to represent the current set of projects so that you can see how potential future projects map onto them. The following is a fairly simple start to how you compare projects with respect to your existing portfolio.
The diagram below shows different projects with the size of the circle representing the investment by the company. (Some people link the area to the investment, others link the diameter of the circle. I have found it safer to beat anyone that worries about this with a rolled up copy of a hefty newspaper. I don’t have any evidence that this works but I always feel better afterwards).
Each project has it’s postion relative to the market and the technology applied.
These two examples might make it more obvious. The company on the right is risking a lot by having projects new to the world in terms of market and technology. That might be the right play but you probably don’t want to have all your projects up there. That’s why portfolio management is often about having balance. The portfolio on the left looks very safe by comparison (but may not be the right one). These are just examples to let you understand about where you are placing your bets on behalf of the company.
More detailed modelling techniques to follow. In the meantime a quick story. I went to a very big company to look at their R&D centre and to try to help them improve things. The first problem was really simple. No-one knew what the hell was going on at all. Literally you couldn’t even get a list of what groups and individuals were up to. Sometimes you have to explain to people why their current approach is not ideal – in this case the trick was not being too embarassed for them.
*I can’t remember if I wrote that myself or sourced it from somewhere else – gotta hate the ravages of time on your memory.
