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Step 1: Assess the Current Situation

• Step 2: Establish Investment Goals

Step 3: Determine Asset Allocation

Step 4: select investment options.

• Step 5: Measure and Rebalance
• Financial Advisor
• Portfolio Construction

The Step by Step Portfolio Planning Process

There are few things more important and more daunting than creating a long-term investment strategy that can enable an individual to invest with confidence and with clarity about their future. Constructing an investment portfolio requires a deliberate and precise portfolio-planning process that follows five essential steps.

Key Takeaways

• In order to plan for the future, first take a cold, hard look at the present, sifting through all current assets, investments, and any debt; then, define your financial goals for the short- and long-term.
• Figure out how much risk and volatility you're willing to take on, and what returns you want to generate; with a risk-return profile established, benchmarks can be set in place to track portfolio performance.
• With a risk-return profile in place, next create an asset allocation strategy that is both diversified and structured for maximum returns; adjust the strategy to account for big life changes, like buying a home or retiring.
• Choose whether you want active management, which might include professionally managed mutual funds, or passive management, which might include ETFs that track specific indexes.
• Once a portfolio is in place, it's important to monitor the investment and ideally reassess goals annually, making changes as needed.

Planning for the future requires having a clear understanding of an investor’s current situation in relation to where they want to be. That requires a thorough assessment of current assets, liabilities, cash flow, and investments in light of the investor's most important goals. Goals need to be clearly defined and quantified so that the assessment can identify any gaps between the current investment strategy and the stated goals. This step needs to include a frank discussion about the investor’s values, beliefs, and priorities, all of which set the course for developing an investment strategy.

Portfolio planning is not a one-and-done deal—it requires ongoing assessments and adjustments as you go through different stages of life.

Step 2: Establish Investment Objectives

Establishing investment objectives centers on identifying the investor’s risk-return profile. Determining how much risk an investor is willing and able to assume, and how much volatility the investor can withstand, is key to formulating a portfolio strategy that can deliver the required returns with an acceptable level of risk. Once an acceptable risk-return profile is developed, benchmarks can be established for tracking the portfolio’s performance. Tracking the portfolio’s performance against benchmarks allows smaller adjustments to be made along the way.

Using the risk-return profile, an investor can develop an asset allocation strategy . Selecting from various asset classes and investment options, the investor can allocate assets in a way that achieves optimum diversification while targeting the expected returns. The investor can also assign percentages to various asset classes, including stocks, bonds, cash, and alternative investments, based on an acceptable range of volatility for the portfolio. The asset allocation strategy is based on a snapshot of the investor’s current situation and goals and is usually adjusted as life changes occur. For example, the closer an investor gets to their retirement target date, the more the allocation may change to reflect less tolerance for volatility and risk.

Your risk-reward profile will change over the years, tilting further away from risk the closer you get to retirement.

Individual investments are selected based on the parameters of the asset allocation strategy. The specific investment type selected depends in large part on the investor’s preference for active or passive management . An actively managed portfolio might include individual stocks and bonds if there are sufficient assets to achieve optimum diversification, which is typically over $1 million in assets. Smaller portfolios can achieve the proper diversification through professionally managed funds, such as mutual funds or exchange-traded funds. An investor might construct a passively managed portfolio with index funds selected from the various asset classes and economic sectors.

Step 5: Monitor, Measure, and Rebalance

After implementing a portfolio plan, the management process begins. This includes monitoring the investments and measuring the portfolio’s performance relative to the benchmarks. It is necessary to report investment performance at regular intervals, typically quarterly, and to review the portfolio plan annually. Once a year, the investor’s situation and goals get a review to determine if there have been any significant changes. The portfolio review then determines if the allocation is still on target to track the investor’s risk-reward profile. If it is not, then the portfolio can be rebalanced , selling investments that have reached their targets, and buying investments that offer greater upside potential.

When investing for lifelong goals, the portfolio planning process never stops. As investors move through their life stages, changes may occur, such as job changes, births, divorce, deaths, or shrinking time horizons, which may require adjustments to their goals, risk-reward profiles or asset allocations. As changes occur, or as market or economic conditions dictate, the portfolio planning process begins anew, following each of the five steps to ensure that the right investment strategy is in place.

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Strategic Portfolio Management: An Overview (+ Template)

Every portfolio manager grapples with challenging decisions regarding which projects and initiatives to undertake and which to cut. Failing to make these hard choices can result in spreading your resources too thin and not maximizing your company’s potential for growth. 

However, the hard truth is that the majority of organizations have limited resources. A recent survey revealed that 83% of project management offices (PMOs) admit that their organizations lack the resources to meet business demands. 

With limited personnel, time, tools, and budget, it’s essential to strategically allocate these assets to yield the highest returns. This is where Strategic Portfolio Management (SPM) comes into play. 

In this article, we’ll define SPM, explore its benefits and challenges, and offer practical strategies for successful implementation.

What Is Strategic Portfolio Management?

SPM is a systematic approach to managing a collection of projects, programs, and other strategic initiatives within an organization. It involves using portfolio analysis to decide which projects to undertake, determine the ideal resource allocation , and monitor the progress of projects to ensure alignment with the organization's corporate strategy .

A staggering 59% of PMOs revealed in a survey that their resources are only somewhat aligned with their business strategies. This indicates that many organizations struggle with their priorities midway through implementation. 

Strategic portfolio management aims to maximize the business value and impact of an organization's overall project portfolio. It ensures that programs, projects, and initiatives are selected and executed in a way that supports the organization's strategic objectives , minimizes risk, optimizes resource allocation, and delivers the greatest return on investment.

SPM is also a better version of Project Portfolio Management (PPM). PPM is regarded more as a commodity, as revealed by Gartner research . It’s viewed as a bottom-up approach that’s too departmental. In a rapidly shifting world, SPM is a better portfolio management approach as it deals with the entire lifecycle of an enterprise-wide strategy, including execution, alignment, and adaptation.

What Are The Benefits Of Strategic Portfolio Management?

There are several SPM benefits you can experience if you use this method effectively. 

Fast execution

The faster you can make decisions, the quicker you can get initiatives off the ground and running. SPM helps you make quick data-driven decisions because it lets you analyze data in parallel instead of tackling them one by one. 

With this method, you can align projects with strategic objectives faster and eliminate redundancies so you can focus on high-impact initiatives and accelerate their execution. This reduces time-to-market, enhances competitiveness, and increases your organization's ability to respond to market dynamics swiftly.

📚 Recommended read: 6 Steps To Successful Strategy Execution

Maximized returns

Successful PMOs prioritize business outcomes, including improvement of revenue performance. By using SPM, you can maximize the overall returns of your projects by forecasting the ones that will generate the highest revenue and focusing on them.

By assessing the potential value and risks of projects, you’ll also improve your resource management. You can make better decisions about resource allocation and ensure that business capabilities are directed towards initiatives that achieve their targets. This approach enhances profitability, market share, and the long-term sustainability of the organization.

Fast adaptability

New technologies, tools, and trends put pressure on organizations to adapt fast to survive. Your organization needs to remain flexible if you want to remain competitive.

Change management is crucial but its success hinges on your ability to pivot instantly. SPM helps define your strategy and create aligned roadmaps so that when a change is inevitable, you can quickly secure resources and innovate.

📚 Recommended read: Strategy Report: You’re Doomed or You Adapt

What’s The Difference Between Strategic Portfolio Management And Project Management?

Although they sound similar, strategic portfolio management and strategic project management are different. 

Strategic portfolio management focuses on the business strategy as a whole to prioritize and align projects to business objectives. With this approach, you can determine the projects that have the highest impact on business outcomes so you can invest more in them.

Meanwhile, strategic project management focuses on managing individual projects from initiation to completion. It’s less concerned about the overall strategy and more concerned about the proper project delivery.

💡Strategic portfolio management is doing the right projects, while strategic project management is doing projects right.

With portfolio management, you measure outcomes and use lead indicators like strategic objectives and key results areas to know which initiatives are producing results. On the other hand, project management involves measuring outputs through lag indicators like KPIs . 

Together, these two management approaches are instrumental in helping organizations reach their goals. 

📚 Recommended read: Leading and Lagging KPIs For Your Business + Examples

4 Key Elements Of Effective Strategic Portfolio Management  

To fully experience the benefits of an SPM approach, you need to develop the following elements. Gartner breaks down strategic portfolio management into three elements, but we’re adding a fourth one because we believe this adds to a more holistic strategy.

1. Portfolio alignment 

The main goal of SPM is to align the entire activity of the enterprise with the business strategy . Your portfolio must be designed to effectively balance the trade-offs between managing risks and prioritizing innovation. Your capacity planning must involve looking at the entire enterprise portfolio and eliminating any projects not contributing to desired business outcomes.

2. Value-driven decision-making

As portfolio managers, you must develop a deep understanding of your business from a financial and operational perspective . You should monitor value-based metrics that will help you evaluate the tangible and intangible benefits of your initiatives. This will reveal the limitations of your current resources so you can strategize on how to maximize them. 

You also need clear visibility of the dependencies between your initiatives and business outcomes so you can effectively prioritize the right programs. This visibility will help you understand the business opportunities and risks associated with your decisions. 

3. Ongoing portfolio flexibility  

Another important element of SPM is your ability to halt any work that doesn’t align with your strategic goals. This flexibility enables quick resource reallocation and funds toward high-impact projects that can help you reach your goals faster. 

Portfolio flexibility also demands that you can quickly change the vision, scope, or outcomes of your projects in response to major external disruptions. To keep your portfolio flexible, you've got to keep a sharp eye on your priorities, understand what your organization can handle, and be ready to shift your resources to the projects that matter most.

4. Centralized observability  

Just as you can’t build a sturdy house without a strong foundation, you can’t effectively manage a strategic portfolio without the right tools that can flex and handle adaptability at speed. 

You need tools, such as strategy execution software , that give you centralized observability of your portfolio and help you close the strategy execution gap. With these in your toolkit, you're equipped to make intelligent, data-informed decisions, create effective strategic plans , and maintain full control over strategy execution.

Key Challenges That Prevent Effective Strategic Portfolio Management  

A lot of organizations struggle with implementing SPM. It’s not an easy approach, but one that’s necessary if you want maximum results for your efforts. The following are the key challenges most PMOs experience.  

Unclear strategic goals 

When strategic goals are fuzzy or unclear, making informed decisions and prioritizing the right projects becomes hard. Without a clear end goal, it's tough to know which initiatives are driving your company forward and how to allocate resources effectively.

22% of PMOs surveyed revealed that unclear objectives and milestones were the reason for project failure. For PMOs to succeed, there must be a clear alignment between success metrics and business goals.

👉How Cascade helps:

Cascade sheds light on blurry strategies by helping you identify the current state of your organization. To know where you're going, you first need to know where you are. With a clear view of your current initiatives and core business metrics , you can make decisions that shape your future performance.

Misaligned resources 

Once the main strategy leaves the boardroom, it can be hard to keep it on track in the hustle and bustle of daily operations. It’s easy to focus on the granular details and forget the bigger picture. As a PMO, your job is to keep your eyes on the whole forest, not just the individual trees. This high-level view is key to assigning the right resources to the right projects.

Cascade's objective alignment map is like your strategy GPS. It lays out your company’s initiatives and links them to strategic objectives. 

This visualization makes it easy to look at the big picture without getting lost in details. You'll easily spot the projects that aren't pulling their weight and decide whether they need a tune-up or the boot. You can also check which objectives are on track, at risk, or in the bag, helping you prioritize your resources wisely.

Data silos  

Every modern organization uses hundreds of tools in its daily operations. The marketing team has its own set of preferred applications, vastly different from what the sales team uses. 

These tools might be perfect for each team, but they can create a headache for the company as a whole. Wrestling with siloed data and tangled spreadsheets can lead to errors that can curb your company's growth.

👉 How Cascade helps:

Cascade supports over a thousand integrations . No matter what tools your teams love, they'll all plug into Cascade, funneling data into one, easy-to-manage place. These integrations ensure nothing slips through the cracks and provides rich insights for your strategies.

Not having an execution-ready and adaptable plan 

Strategies aren’t supposed to sit forgotten in pretty PowerPoint slides. However, many organizations fall into the trap of creating beautiful strategies at annual meetings only to forget about them until the next meeting rolls around.

A strategy without a clear executable plan is a recipe for failure. After you’ve created, presented, and approved a strategy, it’s time to act. 

Cascade makes it easy to execute plans by creating clear roadmaps with timelines and owners associated with every strategy, project, and key initiative. 

You can use different PMO strategy templates that are designed to improve your governance, bolster risk management, and streamline your workflows.

Lack of consistent performance tracking 

Success rides on measuring the right stuff. Without regular performance tracking, you can miss risks and end up burning resources on strategies that just aren't working.

Cascade's strategy dashboards and reports give you a real-time view of your portfolio’s performance. Share them with your stakeholders, secure buy-in for your initiatives, and keep everyone on the same page. 

Run A Strong Strategic Portfolio Management With Cascade 🚀

In the midst of a hectic work environment, Strategic Portfolio Management (SPM) keeps you focused on the big picture. 

Don't just manage—deliver results aligned with company goals and flexibly navigate the complexity of the existing business landscape. With Cascade , overcoming SPM challenges becomes easy, paving the way for successful strategy execution .

Cascade enables you a bird's eye view of your portfolio's health, tracking performance against targets, budgets, and deadlines. Craft quick, tailored reports to keep stakeholders in the loop with metrics that matter most to them. 

Cascade's integrations with thousands of business tools pull accurate data automatically, keeping you updated as initiatives progress. Imagine orchestrating a well-tuned symphony where everyone in your organization understands the strategies and their role in achieving them.

Using Cascade’s Portfolio Strategy Template, you can create the ideal portfolio strategy to maximize returns and reduce risk. So—what are you waiting for?  Grab your free template or book a 1:1 demo to experience Cascade today.

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8-Step Guide to Master Strategic Planning

Discover the art of defining a strategy, establishing strategic goals, and devising an actionable execution plan through our comprehensive 8-step guide to mastering strategic planning.

• Strategic Goals
• Strategic Alignment
• Strategic Planning

Strategic Roadmap

Strategic Portfolio Management Tools

• Portfolio Prioritization
• Portfolio Management Metrics
• Program vs. Project Management
• Project Portfolio Management Software
• The 12 Most Popular Project Management Methodologies
• Project Management Process
• What Are Deliverables in Project Management?
• Project Management Office
• Project Management Workflow
• Project Management Tools
• Product Portfolio Management
• Product Management vs. Project Management
• Product Roadmap
• Product Management Tools
• What Is a Workflow?
• Workflow vs. Process
• Enterprise Workflow Management
• Workflow Examples
• Best Workflow Management Software

Strategic planning is the process of setting the direction of a company to drive it toward growth. The process involves defining an organization’s strategy, turning it into goals, and outlining specific steps and actions to reach these goals. 

Strategic planning facilitates the coordination between developing and implementing the organization’s strategy. The process results in a well-defined and structured plan that guides and ensures your teams are working on projects that drive outcomes, not just outputs. 

In this article, you will learn how to create a winning plan following a step-by-step guide, what tools to use, and why strategic portfolio plans are crucial for an organization's success. 

What Is a Strategic Plan? 

A strategic plan is a document describing an organization’s strategy and directions on how to implement it. It usually includes an analysis of the business environment and actionable steps on how to achieve the set company goals. Strategic plans are developed several years ahead and are updated periodically.   

They are mapped out by senior management with the help of strategists who assist with in-depth industry or competitor analysis.  

What Is the Purpose of Strategic Planning?  

Strategic planning’s main function is to help in setting realistic company goals based on substantial analysis of the business domain. A strategic plan allows managers to narrow down key company attributes such as mission, vision, and values, as well as long-term goals, actionable plans, and benchmark metrics. The process of setting common goals and objectives requires strategic thinking where information is not only used to accumulate action steps but also to foresee its impact on the company in the future.  

Moreover, an effective plan informs about areas of improvement that can help people stay focused and on track. 

What Are the Benefits of Strategic Planning? 

Strategic planning benefits organizations by clarifying their development path and laying out measurable objectives for everyone to work toward. Below are the primary advantages of strategic planning.  

• Strategic planning allows cross-organizational alignment around a shared purpose.  
• Strategic planning encourages company-wide communication.  
• Strategic planning creates a stronger sense of accountability by setting common goals.  
• Strategic planning can improve teams’ engagement by promoting feedback exchange and sharing of ideas. 
• Strategic planning highlights organizational strengths and weaknesses. 
• Strategic planning helps companies identify challenges and potential opportunities.  
• Strategic planning results in improved understanding and effective allocation of capacity and resources. 

What Are the 8 Steps in Strategic Planning? 

Strategic planning’s life cycle goes through a number of stages where ideas, feedback, industry information, and market analysis are used as a basis for determining an organization’s direction. 

The process of creating a strategic plan can be summarized in the following steps: 

Step 1. Perform a Situation Analysis 

Situation analysis refers to the process of defining the present state of the organization, including strengths, weaknesses, opportunities, and threats. At this stage, you should gather and assess all existing information and use it to determine your position. Methods such as SWOT or PEST analysis are commonly used to clarify a company’s present state. 

Step 2. Define a Future State Vision 

Envisioning the future state of your organization should be incorporated into your vision. This future vision should include the state of your processes, communication, values, partnerships, reputation, growth, etc.  

Step 3. Set Strategic Goals  

Once your organization has its business strategy defined, the next move is to write out your strategic goals – high-level objectives that outline your company’s intention for what it wants to accomplish in the following years, typically 3 to 5 years. They should be broader, measurable, and concrete. 

Step 4. Develop Execution Objectives 

As soon as you have identified your strategic goals, then you can translate them into more manageable and specific long- and mid-term objectives. In this way, you ensure alignment between strategy and execution as well as plan their completion more accurately. To prioritize these objectives and break them down into actionable work items, you can use goal-setting techniques such as OKRs or SMART goals. The result of this stage should outline the actual steps toward achieving the set goals.  

Step 5. Incorporate Regular Review Checks 

Seek common agreement and mutual understanding of the strategic goals across your organization. Review meetings are an ideal way to gather feedback and come to an agreement regarding the goals to pursue on a company level and actionable steps on a team level. 

Remember that this phase is applicable during the entire strategy execution process. Your teams should be involved in regular discussions to track their work's progress and make necessary adjustments to ensure that the outcomes are in their best interest. 

Step 6. Define Metrics, Timelines and Responsibilities 

Establishing specific benchmark targets, setting up a timeline, and clearly defining responsibilities are crucial steps in strategic planning. The success of a plan execution will be determined by tracking the progress of the initiatives/projects. An effective approach is to measure and analyze your goals and performance every quarter, ensuring that your efforts are steadily progressing toward achieving the envisioned outcomes. 

To put this into practice, you can employ goal-setting methods such as the objectives and key results ( OKRs ) framework, where each goal is tied to at least 3 performance benchmark criteria (key results), making it easier to measure your progress. 

Step 7. Create a Strategic Map 

The stage refers to the actual writing of a strategic plan. By summarizing your goals, actionable plans, assigning responsibilities, and laying out a timeline, you’ll be able to encompass all the data and analysis captured so far. Using a strategy map diagram is an ideal way to document strategic goals and operational initiatives as well as to identify improvement opportunities. 

Step 8. Implement the Strategic Plan 

The implementation phase of strategic planning involves the process of communicating the plan documentation. You can use interconnected Kanban boards to map your business processes reflecting the strategic goals and objectives, assign responsibilities and create a timeline.  

It’s important to monitor and measure your performance on a quarterly or annual basis. To help you with this, periodically review important KPIs and track the progress of your actionable projects in real-time. You can also use strategy performance frameworks such as Balanced scorecards to track and monitor the execution of your strategy. 

What Is a Strategy Map? 

A strategy map is a visual representation of an organization’s strategy. The graphic itself shows all the strategic plans along with actionable steps in a meaningful way where items are interconnected. The purpose of a strategy map is to demonstrate how value is created.  

It also improves strategic alignment with the organizational goals, where everyone can see how they contribute to the high-level goals. A good strategy map encourages feedback so everyone agrees on what the actionable steps of the strategic plan are.  

What Makes Strategic Planning Successful?  

Success in strategic planning requires a concise structure of your goals and action plans.   A few key characteristics should be present when creating your strategic plan that can increase the success rate of the overall business strategy execution.  

Based on these characteristics, a successful strategic plan should be: 

• Owned by the senior managers : Senior management is responsible for recognizing the organization's present state and future vision and thus, forming the strategic plan. 
• Realistic : Strategic planning needs to be based on an in-depth analysis of internal factors and the external business environment. 
• Transparent : Strategic plans should be openly shared and communicated across team members as they are the actual drivers of the strategy execution.  
• Connected to specific action items : Create a healthy top-down and bottom-up link between strategy and day-to-day activities. When there is a strategy-to-execution alignment, teams are directly involved and contribute to the overall vision delivery, creating a sense of accountability. 
• Quantifiable : Identify observable measures to monitor and control the execution and evaluate its efficiency.   

When Should Strategic Planning Be Done? 

The best time to develop your strategic plan is once you've defined your strategic direction and set up some high-level goals. Remember that planning is a more granular process that defines more specific objectives to achieve. 

In the scenario where companies operate without a strategic plan in place, it’s never too late to develop one. Once you have developed your strategy, all your action plans and day-to-day activities will be synchronized with the set goals.   

If your company has a few years of exposure and you have developed a strategic plan in the past, it is important to review it on a yearly basis. Key insights, such as understanding what has or hasn’t worked in the past year or how the business environment has changed, will help you keep sustainable growth and will foster your relevancy on the market. 

Where Should Strategic Planning Be Used?  

Strategic planning relies heavily on input from across the entire organization. Senior management has to formulate the strategy itself, based on feedback collected from all teams, and then communicate the strategic plan with the organization’s departments. After that, each department creates its own specific projects and initiatives that support the strategic goals. 

For instance, the financial department provides key financial data and annual reports, technical teams can provide relevant information about the technical state and advise on new trends in the field, marketing teams gather information about the number of customers for a given period, etc.   

What Are the Most Common Mistakes in Strategic Planning? 

Strategic planning can be the key to your organization’s growth and success, but if not developed properly, it can turn into a waste of time and resources. Here’s a list of the most common mistakes in strategic planning:  

• Too many strategic goals.  
• Unrealistic strategic goals.  
• Lack of measures for success.  
• Lack of commitment and focus.  
• Poor communication.  

Strategic Planning Templates and Examples 

There’s a variety of strategic planning templates that you can apply to identify your objectives. Key factors in determining the most convenient approach are timelines you’d like to impose for the implementation of the plan, the complexity of your organizational structure, the level of communication, etc.  

Find three examples of strategic planning examples below.  

Example 1. To implement strategic planning using the Objectives and Key Results (OKRs) framework, you need to establish a set of objectives and specify up to 5 key results or tactics that outline how these objectives will be achieved. The objectives should be concrete and action-oriented while the key results should be realistic and measurable.  

To ensure that you set and achieve result-driven goals, you can follow the example of many companies and use OKR templates . This hub for visualizing the alignment between your organization’s strategic goals and work delivery helps to keep your eye on the progress of each goal. 

Example 2. Strategic planning using the Hoshin Planning approach is a 7-step process that connects strategic planning with execution. The actual steps are listed below:  

• Develop an organizational vision.  
• Define key objectives or mission.  
• Break down objectives into annual goals.  
• Distribute the annual goals across the organization.  
• Implement the goals.  
• Conduct monthly reviews to ensure proper plan execution.  
• Conduct annual reviews to verify the end results.  

Example 3. Besides using OKRs, Balanced Scorecard is another strategy management framework that can help you in the strategic planning process. The approach requires the definition of organizational objectives, measures to help to achieve the objectives and initiatives – the actionable steps to accomplishing your goals. 

What Is Strategic Portfolio Planning? 

Strategic planning on a portfolio level refers to coordinating and aligning multiple programs and projects within portfolios to support the execution of the organization’s top-level goals. The purpose of portfolio planning is to boost efficiency by devoting time and effort to the most important projects. 

Portfolio Planning Approaches 

For larger companies with various business units, it can be challenging to select the right objectives and prioritize the projects within portfolios , and allocate the resources accordingly. To handle this task, managers tend to use different portfolio planning approaches. Portfolio planning methods refer to analyzing a company’s portfolios to execute the ones with the highest priority at a time. 

The two most popular portfolio planning approaches are the Boston Consulting Group (BCG) matrix and the General Electric (GE) approach. Let’s take a closer look at each one. 

The Boston Consulting Group (BCG) Matrix    The Boston Consulting Group (BCG) matrix, also famous by its other name Growth Share matrix, is a portfolio management framework that helps companies to evaluate and decide how to prioritize their different portfolio initiatives.  

The two main factors that companies should consider before deciding where to invest are market growth and market share. By assessing their portfolios based on these two driving factors, executives can conclude where to focus their resources to generate the most value and cut costs. 

Referring to the image below, the matrix is in a table view split into four quadrants: question marks, stars, dog, and cash cows. 

Each quadrant tells us the following: 

• Question marks: Low market share and high market growth – products that require an increase in investments to prosper or eventually sell them.  
• Stars: High market share and high market growth – products with high potential. To maintain this trend, companies need to keep a high level of investment and distribution in the market. 
• Dogs: Low market share and low market growth – products that have no potential for success. They are considered a loss of money and resources, and good practice is to be discarded or repositioned. 
• Cash Cows: High market share and low market growth – products with no long-term future.  

The General Electric (GE) Approach  

The General Electric (GE) approach is another technique for portfolio planning. It helps companies decide how to allocate their resources and investment among their businesses. This approach is visualized as a matrix with two dimensions – industry attractiveness and company strength in the industry.

There are three possible exit scenarios for a company:  

• Invest (and grow): increase investments and grow market share. 
• Protect (and hold): hold investment or invest in a selective portfolio.
• Harvest (and divest): reduce or stop investments and slowly drop the business. 

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Strategic planning provides a roadmap that guides an organization's decisions, resource allocation, and actions toward achieving its long-term goals and staying adaptable in a dynamic environment. Aligning portfolios of projects and initiatives with the organization's strategic goals, regular monitoring, and continuous improvement are keys to maintaining a strategy that drives sustainable growth and long-term value for the organization. 

The foundation steps of every strategic planning process include: 

• Analyze the business's current environment. 
• Determine business future vision. 
• Define strategic goals. 
• Break down strategic goals into portfolios of projects and initiatives. 
• Conduct regular review meetings. 
• Define benchmark targets to track progress. 
• Write out the strategic plan. 
• Put your plan into action. 

Nikolay Tsonev

Product Marketing | PMI Agile | SAFe Agilist certified

Nick is passionate about product marketing and business development and is a subject matter expert at Businessmap. With expertise in OKRs, strategy execution, Agile, and Kanban, he continues to drive his interest in continuous improvement. Nick is a PMI Agile and SAFe Agilist certified practitioner.

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4 Steps to Turn Your Portfolio Planning into a Reliable Strategy

The annual planning process seems to be a fixture in virtually every organization. The mechanics vary, but the process of defining strategic priorities and developing ideas and building business cases for projects to address those priorities are the same. Even more so, debating and discussing the merits of various options and ultimately approving a portfolio of projects are pretty much the same all over the world. And not to be the first one to say it, but it doesn’t work.

Effective portfolio planning – one step at a time

Things start off well, we need to have a clearly defined set of strategic goals and objectives, and those goals must be clearly communicated throughout the organization. There then needs to be a comprehensive process of generating and capturing ideas for initiatives that will help the organization to achieve those goals. Once the best ideas are screened in we should be developing business cases to analyze them in more detail. My issue is with the idea that we can fill out a yearlong portfolio by selecting the best of those projects and then approving as many as we have the budget to execute.

As soon as projects get underway, there will be variances between what was planned in the high-level estimates used for project selection and the actual data. Corrections will be needed to schedules, budgets, and adjustments will be made to project scopes. Inevitably this will have a downstream impact on subsequently planned initiatives and will drive changes into those projects that were approved for later quarters long before work on them can even start. Some will be delayed (potentially into the next annual planning period) because of delays in resources becoming available, some will be re-scoped to mitigate the impacts from scope changes in earlier initiatives, and some will just be canceled because there is no longer any budget available to execute them.

As if that kind of change isn’t enough, there will also be shifts in organizational priorities as leadership reacts to a changing corporate, industry and economic environment, and as new opportunities arise. That will result in the projects initially approved no longer be appropriate and will require new project proposals to be developed and ultimately approved, replacing some of the initiatives that were initially part of the portfolio. There needs to be a better approach to project selection and portfolio planning, and there is.

Step 1: Shortened planning cycles

Organizations need to have a strategic vision – a three to five-year plan, potentially even longer, that defines the direction that the organization is moving in. There should then be a shorter to a medium-term plan that outlines the objectives that organizations need to achieve in the next twelve to eighteen months – the achievements that will demonstrate progress towards achieving the strategic vision. So far this sounds a lot like annual planning, but here is where I see things diverging.

Once an organization has established its investment budget for that twelve to eighteen month period, it should begin allocating that budget only to the work that can get underway immediately. Rather than building a yearlong portfolio that starts a few months from today, it approves projects that can begin today, or at least within the next quarter, and allocates just a percentage of the investment budget to those initiatives.

Remaining projects can be given tentative approval and planning work can begin, but the investment of time, effort, and money in those projects should be limited until closer to the time when the substantive work can begin. Consider these projects as the portfolio level equivalent of an Agile product backlog – they are the priority initiatives that will start as soon as resources are available, but they are subject to change.

There is then a regularly scheduled portfolio review – quarterly is a logical choice, which considers two distinct sets of analysis:

• The actual performance of projects underway against the planned performance. The focus is to ensure that the projects are still on track to deliver a satisfactory return on investment in the areas of strategic focus – are those projects still going to contribute to goals and objectives that they were approved to contribute? If some of the projects are falling short, then there needs to be consideration of how to address that, and we’ll get to that in a minute.
• The alignment between the work underway and planned and the organization’s priorities. The focus here is to identify any changes in the goals and objectives (either a shift in the size of the required benefit or a shift in the specific categories of interest) that will require a change in the projects currently underway or planned. Adjustments will then need to be made, and we’ll again look at those later.

Let’s consider each of those in a little more detail to understand how they work together to form a more regular portfolio planning cycle.

Step 2: Project performance review

Projects are approved to be part of a portfolio based on very rudimentary estimates and plans.  Organizations need to strike a balance between doing sufficient work to allow for a realistic assessment of the merits of the initiative and avoiding doing large amounts of work on proposals that will never be approved. That’s completely acceptable, but it does mean that there should be an expectation that once the work starts on approved initiatives there will be variances from the plans. The law of averages says that objective plans should balance out overestimation and underestimation to deliver an overall portfolio budget that is approximately accurate, but we all know the world doesn’t work that way.

It is therefore important to review the more detailed plans and actual data from projects that are underway during the regular portfolio review. In particular, projects that have begun during the last review period should be subjected to close analysis as that is where we will expect the largest variance from the original high-level plan. If detailed plans and/or execution challenges are impacting the project’s ability to contribute its expected business benefits, then changes must occur. Portfolio execution has very little to do with individual initiatives, and everything to do with attaining business results. That may mean significant changes are needed to the project, or that the project needs to be canceled and investment dollars diverted elsewhere.  Regular portfolio reviews can identify these problems more quickly and allow for corrective actions to be taken while losses are minimal.

Coming out of this review will be decisions to adjust budgets, decisions to reallocate funds, and potentially decisions to cancel some of the projects underway.  There will also be approvals to release additional funds to begin work on projects slated to occur during the next review period, but that also needs to take into consideration the next area – project alignment.

Step 3: Project alignment review

Over time the organization’s strategic goals will evolve and change. Partly that will be in response to an evolving vision, and partly it will be in response to changing organizational conditions. Those conditions are impacted by everything from competitor or regulatory activity to economic changes and even executive leadership changes. That evolution is natural and is a necessary part of keeping an organization competitive, but it does impact the work that the organization carries out, especially the project work that drives advancement and change.

Each portfolio review should include validation that the work underway and the work planned still aligns with the goals of the organization. Each project, or proposed project, is designed to contribute to one or more priority areas – revenue growth, market expansion, cost reduction, customer satisfaction, etc.  Each project also has an estimate of the size of the contribution it is expected to make to each of those target areas. The review needs to ensure that both the priority areas that projects are focused on are still relevant and that the size of the contribution is still adequate. From that review, any projects that are underway and appear out of alignment should be modified to ensure they contribute appropriately to relevant goals or canceled if they are unable to contribute to the evolving needs.

For projects that have not yet started, there may be decisions taken to remove projects from the portfolio, and/or approve additional projects to ensure that the portfolio as a whole aligns with the goals and contributes sufficiently. Over and above adding and removing projects, there is likely to be a re-prioritization of planned initiatives to ensure that those projects that are planned to make the greatest contribution to the organizational goals are started as soon as practical – the equivalent of re-prioritizing the portfolio backlog.

Step 4: Next phase funding

Once both forms of review have occurred the organization can release funding for the next period – approving projects to proceed that are expected to start in the next quarter (assuming quarterly reviews). That approval will be a drawdown against the currently unspent portfolio budget and will be dependent on resources being available to consume that investment. Those resources will come from projects that are completing, from initiatives that have been deferred or canceled, or from growth in the resources available for project execution.

By releasing the funds for investment only when they can be used organizations avoid tying up funds that could be better used elsewhere, and they minimize the need to reallocate funds from projects that are no longer aligned with their needs.  Further, by reviewing investments every few months there is an ability to more quickly identify and address problems, minimizing the investment dollars that go to waste.

Conclusions

Annual planning cycles may be a cornerstone of how organizations undertake their strategic planning, but they are becoming increasingly inappropriate for the global marketplace of today.  Organizations must adjust more quickly, responding to competitive threats and predicting others. The idea that strategies can remain stable for eighteen months or more is simply unrealistic in most industries, and that requires a rethinking of how organizations plan and execute their strategic portfolios.

To respond to an ever faster-paced world, planning has to become more frequent and less far-reaching. The closer that planning and execution can come, the less opportunity there is for work to be misaligned or unfocused. That doesn’t mean organizations can lose sight of the need for a long term strategic vision, nor for medium-term strategies to deliver that vision, but it does require a great deal more flexibility and adaptability than in the past.

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PPM 101: Portfolio Planning Drives Strategic Execution

Strategic planning and project planning are common topics, but very few companies do an adequate job of portfolio planning. Project portfolio management is about strategic execution with the goal of maximizing business value delivery. Successful portfolio planning synthesizes what the company or organization aims to achieve at the strategic level and helps select projects at the tactical level that will fulfill those strategic goals. In this post we will cover the primary elements of portfolio planning and how you can incorporate it into your existing portfolio management processes.

Three levels of Planning (Strategic Planning, Portfolio Planning, and Project Planning)

Let’s quickly cover three different types of planning that an organization can do:

• Strategic planning : an executive leadership process to set the direction of the company to fulfill its mission and goals by establishing strategic objectives to fulfill those longer-term goals. Strategic planning entails developing organizational strategy that communicates where the company is going and why. One of the primary outputs of strategic planning is a strategic roadmap .
• Portfolio planning : a senior leadership activity within project portfolio management to reconcile the strategic plan with the right projects and to sequence those projects according to priorities, resources, dependencies , and current environmental conditions.
• Project planning : a team-based process to develop the scope, activities, timing, budget, and resources needed to complete the project, while accounting for risk. This answers the question of “WHAT are we doing?” and “HOW are we doing it?”

The Details of Portfolio Planning

Many of the components of portfolio planning are standard processes of good portfolio management. The problem is that many organizations omit one or more processes and do not adequately tie these processes together in a way to plan out the portfolio. We will summarize the key processes below and then discuss how we tie it together.

Critical Capabilities

• Strategic synthesis – strategic synthesis is a strategic element of portfolio management that goes hand in hand with project selection. A strategic roadmap or strategic plan is a prerequisite for determining what projects are needed to fulfill the strategic plan. In some cases the strategic plan has concrete goals or targets that can be fulfilled by key projects. In other cases, the strategic plan is more general that provides long-term guidance on the type of work needed for the company or organization to succeed. In either case, some level of analysis is needed to identify gaps in the strategic plan and ensure that the right projects are initiated at the right time in line with the strategic roadmap .
• Project Prioritization — prioritization in the context of portfolio planning is used to ensure that higher priority projects are initiated at the right time; lower priority projects may need to be pushed out later into the future so as not to interfere with the delivery of high priority work. This presumes that new requests are evaluated and scored early in the portfolio process in order to determine relative importance in the portfolio. The image below highlights the relationship between resource priority, schedule priority, and project success. Higher priority work gets adequately staffed and is scheduled earlier than lower priority projects.
• Managing project interdependencies —some projects have an important relationship to other projects in the portfolio (e.g. one project cannot start until another project is finished, there is a lower cost to running projects concurrently, etc.). Understanding dependencies helps Portfolio Managers sequence projects to minimize conflicts, reduce risk, deliver on time and on budget, etc. PMO’s and Portfolio Managers should develop a dependency management process in order to have clear line of sight of all relationships between projects in the portfolio. We believe that in the near future, Artificial Intelligence (AI) and Machine Learning will greatly assist in identifying project dependencies .
• Evaluating resource capacity —some understanding of resource capacity and utilization is necessary in order to properly sequencing projects. This will help avoid resource conflicts of critical bottleneck resources and help ensure successful project delivery.
• Managing organizational impacts —organizations can only absorb a certain amount of change at one time; PMO’s and Portfolio Managers need to monitor the launch timing of projects and the relative impacts to internal and external stakeholders. Proper sequencing will minimize organizational disruptions.

How To Tie These Elements Together

Portfolio planning begins with strategic synthesis of the strategic plan in order to identify any gaps in the portfolio. This analysis may be performed by a Strategy team or a member of the PMO that is involved with portfolio management. New projects that are identified from this analysis should then go through the standard intake process for vetting and project planning.

At this point, there are several portfolio management disciplines that come together to support portfolio planning. As projects pass through a work intake (or Phase-Gate ) process, new projects should be evaluated and scored in order to determine the relative value and riskiness of each project initiative. Priorities should drive the timing and resource allocation of all projects in the portfolio. Even ‘important’ projects should be evaluated and compared to the rest of the portfolio.

Resource utilization should also be accounted for in order to construct a realistic portfolio. Without understanding the resource utilization of key resources, there is a high risk that some critical teams will be over-utilized thereby jeopardizing overall portfolio delivery. Senior leaders that want to protect specific project delivery need to understand resource capacity and ensure that their critical resources are not stretched thin across too many projects.

In order to support project sequencing, PMO’s and Portfolio Managers must have a process for identifying and tracking project dependencies . Just as Project Managers must create realistic project schedules that take into account dependencies between activities, so should PMO’s and Portfolio Managers ensure that projects are sequenced according to key dependencies between projects. It is far too tempting for senior leaders to launch new projects at the same time without accounting for dependencies between projects; this is one way organizations get into trouble.

Finally, there may be critical need dates for certain projects. This could be related to an executive mandate, market pressure, product launch, etc. These dates also need to be factored into sequencing projects in the portfolio. The image below highlights how we tie these concepts together.

Portfolio Planning by Lifecycle Stage

We will briefly cover portfolio planning from the angle of the portfolio lifecycle . As we manage a portfolio there is ongoing work to define the portfolio (largely through selecting the right projects), followed by optimizing the portfolio, and then protecting portfolio value (through project execution). Each step of the portfolio lifecycle emphasizes a different component of portfolio planning.

Define the portfolio : Portfolio Planning at this life cycle stage is focused on providing visibility of the project pipeline and the long-term strategic roadmap. This is where strategic synthesis is very important. PMO’s and the portfolio governance team should maintain constant visibility of the strategic roadmap and ensure that the right projects are initiated at the right time.

Optimize portfolio value :  portfolio planning at this life cycle stage is focused on optimizing the sequencing and timing of approved projects based on resource constraints and dependencies. The emphasis here is to use optimization techniques to maximize the value that the portfolio can deliver. For lower maturity organizations it would entail utilizing prioritization and capacity planning techniques to construct as good of a portfolio as they are capable.

Safeguard portfolio value : portfolio planning at this life cycle stage is focused on maintaining the strategic roadmap in light of changing conditions and dates during project execution. The emphasis here is to tactically protect the existing strategic roadmap by actively managing project and portfolio risks, dependencies between projects that could jeopardize project delivery, schedule delays across projects, and others changes in the project environment. This is a more holistic approach to protecting portfolio value.

Agile Portfolio Planning (Lean Portfolio Management)

Portfolio planning in an agile world looks different from traditional portfolio management. The concept is around lean portfolio management that puts more decision making into the hands of product teams that manage product backlogs. Agile portfolio planning still includes a strategic element, but governance is largely decentralized. A portfolio backlog does exist, but organizations may only be looking 6-12 months into the future. Funding decisions are largely related to value streams (i.e. to determine how much funding to give a specific value stream or product).

A Final Word About Portfolio Planning and Organizational Maturity

Portfolio planning brings together multiple portfolio management capabilities in order to drive even greater strategic execution. Most organizations utilize some of the capabilities such as prioritization and capacity planning, but many miss the synergy of using them in an interconnected way. Companies can still achieve solid prioritization at level 2 maturity and may begin resource capacity planning at level 2, but gaining the synergy of portfolio planning and being able to successfully sequence projects based on priority, resources, and dependencies really begins at level 3 portfolio maturity . At this point, portfolio governance teams can solidly use the fundamental capabilities and take it a step further to strategically plan the portfolio.

Contact us to learn more about how your organization can achieve the benefits of portfolio planning.

VIDEO: What is Portfolio Planning

Tim is a project and portfolio management consultant with 15 years of experience working with the Fortune 500. He is an expert in maturity-based PPM and helps PMO Leaders build and improve their PMO to unlock more value for their company. He is one of the original PfMP’s (Portfolio Management Professionals) and a public speaker at business conferences and PMI events.

What are the three aspects of strategic planning?

Strategic planning to develop the strategy and sets the direction of the company to fulfill its mission and goals. Portfolio planning to reconcile the strategic plan with the right projects and sequencing these projects appropriately according to priorities, resources, dependencies, and current environmental conditions. Project planning to develop the scope, activities, timing, budget, and resources needed to complete the project, while accounting for risk.

What is project portfolio planning?

Portfolio planning combines prioritization, work intake, capacity planning, and project interdependencies together to construct and sequence a more optimal project portfolio.

What is the relationship between prioritization and portfolio planning?

Prioritization helps identify the relative importance of projects in the portfolio - this helps determine resource priority and scheduling priority in the context of portfolio planning.

What is Agile portfolio planning?

Portfolio planning in an agile world looks different from traditional portfolio management. Agile portfolio planning still includes a strategic element, but governance is largely decentralized. A portfolio backlog does exist, but organizations may only be looking 6-12 months into the future. Funding decisions are largely related to value streams (i.e. to determine how much funding to give a specific value stream or product).

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Chapter 2: Strategic Planning

2.5 Strategic Portfolio Planning Approaches

Learning Objectives

• Explain how SBUs are evaluated using the Boston Consulting Group matrix.
• Explain how businesses and the attractiveness of industries are evaluated using the General Electric approach.

When a firm has multiple strategic business units like PepsiCo does, it must decide what the objectives and strategies for each business are and how to allocate resources among them. A group of businesses can be considered a portfolio, just as a collection of artwork or investments compose a portfolio. In order to evaluate each business, companies sometimes utilize what’s called a portfolio planning approach. A portfolio planning approach involves analyzing a firm’s entire collection of businesses relative to one another. Two of the most widely used portfolio planning approaches include the Boston Consulting Group (BCG) matrix and the General Electric (GE) approach.

The Boston Consulting Group Matrix

The Boston Consulting Group (BCG) matrix helps companies evaluate each of its strategic business units based on two factors: (1) the SBU’s market growth rate (i.e., how fast the unit is growing compared to the industry in which it competes) and (2) the SBU’s relative market share (i.e., how the unit’s share of the market compares to the market share of its competitors). Because the BCG matrix assumes that profitability and market share are highly related, it is a useful approach for making business and investment decisions. However, the BCG matrix is subjective and managers should also use their judgment and other planning approaches before making decisions. Using the BCG matrix, managers can categorize their SBUs (products) into one of four categories, as shown in Figure 2.16 “The Boston Consulting Group (BCG) Matrix”.

Everyone wants to be a star. A star is a product with high growth and a high market share. To maintain the growth of their star products, a company may have to invest money to improve them and how they are distributed as well as promote them. The iPod, when it was first released, was an example of a star product.

A cash cow is a product with low growth and a high market share. Cash cows have a large share of a shrinking market. Although they generate a lot of cash, they do not have a long-term future. For example, DVD players are a cash cow for Sony. Eventually, DVDs are likely to be replaced by digital downloads, just like MP3s replaced CDs. Companies with cash cows need to manage them so that they continue to generate revenue to fund star products.

Question Marks or Problem Children

Did you ever hear an adult say they didn’t know what to do with a child? The same question or problem arises when a product has a low share of a high-growth market. Managers classify these products as question marks or problem children. They must decide whether to invest in them and hope they become stars or gradually eliminate or sell them. For example, as the price of gasoline soared in 2008, many consumers purchased motorcycles and mopeds, which get better gas mileage. However, some manufacturers have a very low share of this market. These manufacturers now have to decide what they should do with these products.

In business, it is not good to be considered a dog. A dog is a product with low growth and low market share. Dogs do not make much money and do not have a promising future. Companies often get rid of dogs. However, some companies are hesitant to classify any of their products as dogs. As a result, they keep producing products and services they shouldn’t or invest in dogs in hopes they’ll succeed.

The BCG matrix helps managers make resource allocation decisions once different products are classified. Depending on the product, a firm might decide on a number of different strategies for it. One strategy is to build market share for a business or product, especially a product that might become a star. Many companies invest in question marks because market share is available for them to capture. The success sequence is often used as a means to help question marks become stars. With the success sequence, money is taken from cash cows (if available) and invested into question marks in hopes of them becoming stars.

Holding market share means the company wants to keep the product’s share at the same level. When a firm pursues this strategy, it only invests what it has to in order to maintain the product’s market share. When a company decides to harvest a product, the firm lowers its investment in it. The goal is to try to generate short-term profits from the product regardless of the long-term impact on its survival. If a company decides to divest a product, the firm drops or sells it. That’s what Procter & Gamble did in 2008 when it sold its Folgers coffee brand to Smuckers. Proctor & Gamble also sold Jif peanut butter brand to Smuckers. Many dogs are divested, but companies may also divest products because they want to focus on other brands they have in their portfolio.

As competitors enter the market, technology advances, and consumer preferences change, the position of a company’s products in the BCG matrix is also likely to change. The company has to continually evaluate the situation and adjust its investments and product promotion strategies accordingly. The firm must also keep in mind that the BCG matrix is just one planning approach and that other variables can affect the success of products.

To review the categories of the BCG Matrix, use the below exercise:

The General Electric Approach

Another portfolio planning approach that helps a business determine whether to invest in opportunities is the General Electric (GE) approach. The GE approach examines a business’s strengths and the attractiveness of the industry in which it competes. As we have indicated, a business’s strengths are factors internal to the company, including strong human resources capabilities (talented personnel), strong technical capabilities, and the fact that the firm holds a large share of the market. The attractiveness of an industry can include aspects such as whether or not there is a great deal of growth in the industry, whether the profits earned by the firms competing within it are high or low, and whether or not it is difficult to enter the market. For example, the automobile industry is not attractive in times of economic downturn such as the recession in 2009, so many automobile manufacturers don’t want to invest more in production. They want to cut or stop spending as much as possible to improve their profitability. Hotels and airlines face similar situations.

Companies evaluate their strengths and the attractiveness of industries as high, medium, and low. The firms then determine their investment strategies based on how well the two correlate with one another. As Figure 2.17 “The General Electric (GE) Approach” shows, the investment options outlined in the GE approach can be compared to a traffic light. For example, if a company feels that it does not have the business strengths to compete in an industry and that the industry is not attractive, this will result in a low rating, which is comparable to a red light. In that case, the company should harvest the business (slowly reduce the investments made in it), divest the business (drop or sell it), or stop investing in it, which is what happened with many automotive manufacturers.

Although many people may think a yellow light means “speed up,” it actually means caution. Companies with a medium rating on industry attractiveness and business strengths should be cautious when investing and attempt to hold the market share they have. If a company rates itself high on business strengths and the industry is very attractive (also rated high), this is comparable to a green light. In this case, the firm should invest in the business and build market share. During bad economic times, many industries are not attractive. However, when the economy improves businesses must reevaluate opportunities.

Key Takeaways

A group of businesses is called a portfolio. Organizations that have multiple business units must decide how to allocate resources to them and decide what objectives and strategies are feasible for them. Portfolio planning approaches help firms analyze the businesses relative to each other. The BCG and GE approaches are two or the most common portfolio planning methods.

Review Questions

• How would you classify a product that has a low market share in a growing market?
• What does it mean to hold market share?
• What factors are used as the basis for analyzing businesses and brands using the BCG and the GE approaches?

Principles of Marketing - H5P Edition Copyright © 2022 by [Author removed at request of original publisher] is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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A 5-step strategic portfolio management process: a winning strategy to business success

Are you struggling to connect projects and programs with the strategic objectives of your organization? Don’t you have visibility on objectives, which limits your ability to undertake resource management or financial management efficiently? Effective project portfolio management is useless if it does not deliver business outcomes. And how to address it? By embracing Strategic Portfolio Management, the new PPM era.

In this post we explain the key components of the Strategic Portfolio Management process . Starting from the base, which is the definition of strategic objectives, we will unpack all the components of a process that will take your PPM to the next level.

TABLE OF CONTENTS

• What is Strategic Portfolio Management: a brief introduction.
• Step 1: Define your strategic objectives.
• Step 2: Align investments and capacity when implementing the strategy.
• Step 3: Get real-time visibility at portfolio level.
• Step 4: Adopt Hybrid methodologies when delivering the work.
• Step 5: Adaptive and ongoing management.
• Conclusion: Strategic Portfolio Management, welcome to the new era of PPM.

What is Strategic Portfolio Management: a brief introduction

But before going deeper into this, let’s introduce the concept of Strategic Portfolio Management (SPM), and what are the main differences with Project Portfolio Management (PPM) .

As Gartner explains, Strategic Portfolio Management (SPM) is “a set of business capabilities, processes and supporting portfolio management technologies” in order to create “a portfolio of strategic options that focus an organization’s finite resources” and with which to execute business strategy across the corporation.

One of the major challenges for organizations is to prioritize projects, products and programs according to their mission and strategic vision. And it is an issue mainly for two reasons:

• Strategic objectives are not clear enough , either because they are not well defined or because they have not been communicated to all stakeholders involved in strategy execution.
• There is no visibility over all the information artifacts and processes that make up project portfolio management. This can lead to information silos in relevant topics such as Capacity Planning , Financial Management or Risk Management. Silos that, if not eliminated, will cause your PPM efforts to fail to produce the expected business results.

Establish a governance structure that includes all stakeholders and communication protocols for each of them

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At the end of the day, Strategic Portfolio Management consists of implementing a series of processes and tools that will facilitate decision making in matters such as:

• Prioritization or cancellation of projects based on whether or not they are aligned with the objectives.
• Plan capacity and resource management more efficientl y, especially for those projects and programs that are of vital importance to the company.
• Open or close the flow of investments in the organization’s portfolios based on their relevance to the business.

Strategic Portfolio Management vs Project Portfolio Management: what´s the difference?

Project Portfolio Management has always been linked to Project Management . In other words, PPM, over the last 25 years, has focused on completing projects within the agreed deadlines and budgets, always prioritizing those initiatives that deliver the highest value in the long term and in the shortest possible time.

Due to the proliferation of applications that were defined as PPM tools, the concept of Strategic Portfolio Management emerged. This is a term with which PPM market analysts recognize all those solutions that focus on enterprise-wide alignment and adaptation to strategic planning and execution.

Therefore, there are 3 main differences between Strategic Portfolio Management and Project Portfolio Management:

• Continuous planning: Strategic Portfolio Management focuses on continuous planning and its monitoring. In this way, business outcomes can be linked to the different project portfolios of the organization in the medium and long term.
• Business agility: the need to shorten time-to-market and maximize market opportunities makes it unfeasible a project portfolio management disconnected from the company’s mission and vision. Strategic Portfolio Management provides a 360º vision of strategic planning and execution and makes organizations more agile in prioritizing initiatives or adapting to changes in strategy.
• Maximize capacity and resource usage: The Strategic Portfolio Management process provides organizations with the appropriate processes and tools to assess the priority of projects given their limited capacity and resources. It thus contributes to more efficient resource management and capacity planning.

Designing a successful Strategic Portfolio Management process

This change of approach, however, is not easy and requires a detailed process. PMOs have to manage an increasing number of projects and programs with increasingly limited resources and capabilities. They also need to prove the value they bring to the corporation in the eyes of Executives and Senior Management. And, for this, the most effective way is to create a Strategic Portfolio Management process that links the different projects, programs and products to be managed with corporate objectives.

To this end, these are the 5 steps to design a Strategic Portfolio Management process that contributes to business success:

• Define your strategic objectives.
• Align investments and capacity when implementing the strategy.
• Get real-time visibility at portfolio level.
• Adopt Hybrid methodologies when delivering the work.
• Adaptive and ongoing management.

We go into more detail on each of the steps of the process below.

Step 1: Define your strategic objectives

To set the foundations of the process, it is essential to start with the basics: to define your strategic objectives. These objectives will ultimately guide the PMO in selecting and prioritizing the projects that will add the most value to the business.

Remember that it is very important to have traceability between the overall objectives of the organization and the project outcomes, as well as to efficiently communicate the strategy to all stakeholders involved in the strategy planning and execution. It is the only way to get the whole company on the same page.

A framework such as OKR can help you establish this connection between objectives, project portfolio prioritization and outcomes. It will help you to monitor in real time if you are achieving the expected results and to pivot or reprioritize your project portfolios according to changing business needs.

Step 2: Align investments and capacity when implementing the strategy

Once you draw up a roadmap in which you can visualize the objectives and how you will achieve them, you pave the way for better decision making in areas such as Budget Management, Capacity Planning or Resource Management .

By aligning investments with strategy execution, you are assured that the most relevant projects to your strategy will be properly financed. The same applies to Capacity Planning: your most valuable resources will be involved in the most important projects, while you detect resource constraints earlier.

Use criteria such as risk, ROI or strategy alignment to prioritize project portfolios

This will have a positive impact on project and product portfolios that are most relevant to the business, as blocking points and bottlenecks in resources or funds allocation will be reduced. However, this part of the process requires constant monitoring and review, so you should:

• Centralize all your Demand Management processes to have complete visibility on all work to be delivered and to be able to select and prioritize initiatives in real time.
• Review every 3 to 6 months the priority of deliverables: Organizational objectives change at a dizzying pace. This means that the priority of each project portfolio must be constantly reviewed to ensure that it remains aligned with objectives. And, consequently, capacity planning and budget management must also be reviewed from time to time to ensure that they remain aligned with the strategy.

Step 3: Get real-time visibility at portfolio level

For a successful implementation of the Strategic Portfolio Management process, information silos must be broken down. Tools and processes must be established to ensure the traceability between objectives – portfolio prioritization – results.

Whether it is because project portfolios and strategic planning are still managed with spreadsheets , or because many PPM solutions have failed to adapt to the new reality of organizations, the fact is that many organizations today do not have the tools to connect strategy, execution and business benefits.

Now more than ever it is necessary to have a PPM software with SPM functionalities , as they will be your ally to face the challenges you will encounter when implementing the Strategic Portfolio Management process. For example:

• Plan strategy and operations from one single place.
• Allocate resources and funds according to objectives./li>
• Prioritize the most profitable projects and initiatives for the business.
• Break down informational silos.

Step 4: Adopt Hybrid methodologies when delivering the work

Related to the previous point, another weakness of most PPM software is that they are very rigid when it comes to pivoting between different Project Management methodologies. The objective of Strategic Portfolio Management is to accelerate the delivery of business value with whatever working methodology. Therefore, this process allows the use of agile, hybrid or waterfall methodologies .

This would mean selecting from a single PPM platform the work methodology that best suits each project according to the complexity, risks and resources needed to carry it out. For example, complex projects with a high level of uncertainty may benefit from an agile approach, while simpler projects may be better suited to a traditional approach.

Only a very few PPM tools have this flexibility to pivot from one methodology to another on the same platform. Having it would help to connect the work delivered with the business objectives, as well as help to accelerate the commercialization of our products and services, or to meet the expectations of customers and stakeholders.

Step 5: Adaptive and ongoing management

Last but not least, Strategic Portfolio Management is a process of continuous improvement. And even more so in this highly competitive environment, in which companies must be able to continually adapt to economic changes in order to be resilient and remain competitive in their markets.

This involves periodically reviewing the strategic planning (objectives, OKRs, decision-making criteria), as well as the performance and risks of each of the project portfolios . And, based on your analysis, optimize aspects such as Capacity Planning or Budget Management, as mentioned in point 2 above.

Adaptability. This is the key idea that you have to stick with. Adaptive Portfolio Management will give your organization the flexibility to address changes in strategy execution without compromising the performance and results of your project portfolios, and is a key element for efficient Strategic Portfolio Management.

Put in place performance metrics that measure progress toward strategic objectives

Conclusion: Strategic Portfolio Management, welcome to the new era of PPM

In conclusion, Strategic Portfolio Management has become an essential tool for companies looking to connect their strategy with execution. The 5 steps we have detailed in this article provide a clear and practical roadmap for designing and executing a successful Strategic Portfolio Management process.

It should be noted that, in order to implement this process, it is essential to have PPM tools with Strategic Portfolio Management capabilities. This will allow you to get a clear, real-time view of the strategy and all your project and product portfolios, helping companies to make informed decisions and align investment with strategic objectives.

If you want to learn more about Triskell’s Strategic Portfolio Management platform solutions , don’t hesitate to request a demo right now.

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FAQs about Strategic Portfolio Management process

How can i get started with implementing a strategic portfolio management process.

Here are some initial steps to establish an Strategic Portfolio Management (SPM) process:

• Gain buy-in from senior leadership : Secure leadership support to ensure SPM has the necessary authority and resources.
• Identify key stakeholders : Involve relevant stakeholders across departments to ensure a holistic view of the portfolio.
• Define clear decision-making criteria : Establish criteria for project selection and prioritization based on strategic alignment.
• Choose appropriate tools and technologies : Consider PPM software solutions that facilitate portfolio visualization, analysis, and collaboration.

How does strategic portfolio management differ from traditional project management?

While project management focuses on individual project execution, SPM takes a broader view. It considers the entire portfolio of projects, ensuring alignment with strategic goals and optimal resource allocation across all initiatives. SPM helps organizations make strategic choices about which projects to pursue based on their potential contribution to the overall vision.

How can I ensure my strategic objectives are clear and measurable?

Developing SMART objectives (Specific, Measurable, Achievable, Relevant, and Time-bound) provides clarity and facilitates measurement:

• Specific : Clearly define what you want to achieve with each objective.
• Measurable : Establish metrics to track progress towards your objectives.
• Achievable : Set realistic yet ambitious goals for your projects.
• Relevant : Align objectives with your overall organizational strategy.
• Time-bound : Define a timeframe for achieving each objective.

How can I overcome common challenges associated with strategic portfolio management?

Here are some strategies to address common SPM challenges:

• Resistance to change : Address concerns and provide clear communication about the benefits of SPM for better adoption.
• Lack of clear strategic objectives : Clearly define strategic goals to guide portfolio decisions and ensure alignment.
• Data quality and integration issues : Implement processes to ensure data accuracy and seamless integration between different systems .
• Limited portfolio visibility : Invest in PPM tools that provide a comprehensive view of your entire project portfolio.
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Building a Winning Business Model Portfolio

Many companies today are operating several business models at once. But despite the potential that business model diversification has for generating growth and profit, executives need to carefully assess the strategic contributions of each element of their business model portfolio.

• Business Models
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Across many industries, companies are using innovative business models as a basis for competitive advantage. 1 In recent years, for example, we have seen upstarts such as Uber Technologies Inc. and Airbnb Inc. use multisided business models to leverage ordinary resources against established competitors that rely on unique resources. 2 Increasingly, organizations are adopting two or more business models at once. 3 Multiple business models provide companies with a diversification vehicle that enables them to tap into resources and capabilities that aren’t available through other means. By definition, a company diversifies into a business model portfolio when it engages in at least two ways of creating and/or monetizing value. 4

To illustrate how business model diversification can work, 5 consider Netflix Inc. Netflix deployed two distinct business models (DVDs by mail and online streaming) to challenge Blockbuster and other movie rental incumbents. 6 Although its rapid market penetration and growth are indisputable, Netflix did not initially depend on traditional approaches to diversification. In fact, the company offered U.S. customers essentially the same movies through both its DVD by mail and online streaming services, but it offered different subscription prices, a choice of physical versus digital rentals, and value-added services online, including tailored recommendations. Netflix’s business model diversification helped it to expand its U.S. market share, which provided a springboard for extensive international expansion as well as an expanded product portfolio that now includes original content.

Although Netflix’s success shows how multiple business models can work to make organizations more competitive, such success stories are, more often than not, specific to a particular company’s circumstances. However, there can also be industry-wide patterns. When we studied various business model configurations in the Formula One automobile racing industry, we found that certain configurations of business models were associated with higher performance than others. We concluded that the higher-performing business model configurations generally led to better results because there were complementarities between the two business models chosen that helped companies both learn faster and further develop key business capabilities. 7

As companies attempt to diversify into portfolios of business models that achieve higher performance than other configurations, they need to match their own resources 8 and capabilities 9 to the external opportunities they face.

About the Authors

Paolo Aversa is an associate professor of strategy and Stefan Haefliger a professor of strategic management and innovation at City University of London’s Cass Business School. Danielle Giuliana Reza, a former research assistant at Cass, is a product manager at Samsung Electronics (U.K.) Ltd.

1. D.J. Teece, “Business Models, Business Strategy, and Innovation,” Long Range Planning 43, no. 2-3 (April-June 2010): 172-194; R. Amit and C. Zott, “Value Creation in e-Business,” Strategic Management Journal 22, no. 6-7 (June-July 2001): 493-520; and C.C. Markides and D. Oyon, “What to Do Against Disruptive Business Models (When and How to Play Two Games at Once),” MIT Sloan Management Review 51, no. 4 (summer 2010): 25-32.

2. F. Fréry, X. Lecoq, and V. Warnier, “Competing With Ordinary Resources,” MIT Sloan Management Review 56, no. 3 (spring 2015): 69-77.

3. C. Markides and C.D. Charitou, “Competing With Dual Business Models: A Contingency Approach,” Academy of Management Executive 18, no. 3 (2004): 22-36; and Markides and Oyon, “What to Do Against Disruptive Business Models.”

4. P. Aversa and S. Haefliger, “Business Model Portfolio Diversification,” working paper, Cass Business School, London, 2017; and S. Timo and G. Vroom, “Mergers and Acquisition Revisited: The Role of Business Model Relatedness,” Advances in Mergers and Acquisitions, forthcoming.

5. Among others, see P. Aversa, S. Furnari, and S. Haefliger, “Business Model Configurations and Performance: A Qualitative Comparative Analysis in Formula One Racing, 2005-2013,” Industrial and Corporate Change 24, no. 3 (June 2015): 655-676; G. Ahuja and E. Novelli, “Incumbent Responses to an Entrant With a New Business Model: Resource Co-Deployment and Resource Re-Deployment Strategies,” in “Resource Redeployment and Corporate Strategy (Advances in Strategic Management, Vol. 35),” ed. T.B. Folta, C.E. Helfat, and S. Karim (Bingley, United Kingdom: Emerald Group Publishing, 2016), 125-153; and Markides and Charitou, “Competing With Dual Business Models.”

6. For an analysis of the Netflix business model, see Ahuja and Novelli, “Incumbent Responses to an Entrant With a New Business Model”; and Teece, “Business Models, Business Strategy, and Innovation.”

7. Aversa, Furnari, and Haefliger, “Business Model Configurations and Performance.”

8. J. Barney, “Firm Resources and Sustained Competitive Advantage,” Journal of Management 17, no. 1 (March 1991): 99-120.

9. D.J. Teece, G. Pisano, and A. Shuen, “Dynamic Capabilities and Strategic Management,” Strategic Management Journal 18, no. 7 (August 1997): 509-533.

10. W.C. Lawler, “Understanding the Financial Footprints of Strategy,” in “Strategy, Innovation, and Change: Challenge for Management,” eds. R. Galavan, J. Murray, and C. Markides (Oxford, United Kingdom: Oxford University Press, 2008), 69-96.

11. M.E. Porter, “What Is Strategy?” Harvard Business Review 74, no. 6 (November-December 1996): 61-78. Porter argues that “competitive strategy entails a deliberate choice of a specific set of activities aimed at delivering a unique mix of value.” For a strategy to remain sustainable, trade-offs with other competitors’ positions must exist, thus making certain activities incompatible with others, due to “inconsistencies in image,” “inflexibilities in resources,” or “limits on internal coordination.” Yet it is the very existence of such positioning trade-offs that can instigate the erosion of a company’s competitive advantage for those that deploy multiple — and, in his view, conflicting — business models.

12. Ibid. Porter argues that “fit locks out imitators by creating a chain that is as strong as its strongest link.”

13. C. Zott and R. Amit, “Business Model Design: An Activity System Perspective,” Long Range Planning 43, no. 2-3 (April-June 2010): 216-226; A. Afuah and C.L. Tucci, “Internet Business Models and Strategies: Text and Cases” (New York: McGraw Hill Higher Education, 2001); and Amit and Zott, “Value Creation in e-Business.”

14. R. Casadesus-Masanell and J. Tarziján, “When One Business Model Isn’t Enough,” Harvard Business Review 90, no. 1-2 (January-February 2012):132-137. The authors investigated LAN Airlines and its joint adoption of three business models. The latter configuration generated greater value together than apart, thus “turning otherwise unviable possibilities into profitable opportunities.”

15. V. Sabatier, V. Mangematin, and T. Rousselle, “From Recipe to Dinner: Business Model Portfolios in the European Biopharmaceutical Industry,” Long Range Planning 43, no. 2 (April 2010): 431-447.

16. Aversa, Furnari, and Haefliger, “Business Model Configurations and Performance.”

17. B. Wernerfelt, “A Resource-Based View of the Firm,” Strategic Management Journal 5, no. 2 (April-June 1984): 171-180; and Barney, “Firm Resources and Sustained Competitive Advantage.”

18. C. Baden-Fuller and M.S. Morgan, “Business Models as Models,” Long Range Planning 43, no. 2 (April 2010): 156-171; C. Baden-Fuller and V. Mangematin, “Business Models: A Challenging Agenda,” Strategic Organization 11, no. 4 (November 2013): 418-427; and C. Baden-Fuller and S. Haefliger, “Business Models and Technological Innovation,” Long Range Planning 46, no. 6 (December 2013): 419-426.

19. Fréry, Lecoq, and Warnier, “Competing With Ordinary Resources”; see also D. Leonard-Barton, “Core Capabilities and Core Rigidities: A Paradox in Managing New Product Development,” Strategic Management Journal 13, special issue (summer 1992): 111-125.

20. “AWS Customer Success,” 2017, https://aws.amazon.com.

21. J. Bort, “Amazon’s Massive Cloud Business Hit Over $12 Billion in Revenue and $3 Billion in Profit in 2016,” Feb. 2, 2017, www.businessinsider.com; and A. Levy and A. Balakrishnan, “Amazon Sinks as Revenue Misses, Guidance Disappoints,” Feb. 2, 2017, www.cnbc.com.

22. B. Darrow, “Amazon Unveils New AI Services for Cloud Devotees,” Nov. 30, 2016, http://fortune.com; and “Amazon Lex,” 2017, https://aws.amazon.com.

i. See classification schemas in Baden-Fuller and Mangematin, “Business Models: A Challenging Agenda”; and Baden-Fuller and Haefliger, “Business Models and Technological Innovation.”

Acknowledgments

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What is portfolio planning and why is it important?

Don’t you love it when a plan comes together?

We do, too. But if you want your company to achieve all of its big goals you’ve got to put in a little bit of work.

That’s where portfolio planning comes in.

Portfolio planning is all about strategizing and building your company’s portfolio of investments, projects, or services based on what it is your organization is after.

Translation: portfolio planning helps you put together the perfect blend of risk and reward.

But as always, there’s more to it than that. Portfolio planning is a multi-step process that comes with its own unique applications. But don’t worry, because we’re happy to walk you through it.

This article will explain what portfolio planning is, the benefits of portfolio planning, planning steps, and how you can manage your portfolio using monday.com.

Get started with monday.com

What is portfolio planning?

Portfolio planning is the process of deciding what you want in your portfolio. Don’t get thrown by all these buzzwords, because it’s pretty straightforward.

When people talk about “portfolios”, they’re really just referring to any group of programs or projects that an organization takes on as a way to reach a strategic objective.

Portfolios simply give companies a way to shape and organize their projects and operations to keep an eye on the bigger picture.

You’ll normally hear about portfolio planning in the context of finance. A financial portfolio is a grouping of assets (like stocks, bonds, or a mutual fund), and an investor will use portfolio planning to design a group of assets that meets their risk tolerance, desired return on investment (ROI), and investment time horizon.

( Image Source )

But if investment isn’t your thing, don’t panic. Portfolio planning is also used in project management as a way to review your project portfolio to make sure everything your team is doing makes sense.

In the organizational or project management sense, a portfolio could include anything from products or services to projects, properties, inventory, and everything in between.

But just like financial portfolio planning, the goal of portfolio planning in project management is totally the same.

By organizing things centrally, you’ll benefit from a standardized bird’s eye view of your company projects and see which projects are helping your company achieve its strategic goals.

That’s why portfolio planning is so important for businesses trying to boost efficiency.

Portfolio planning helps you determine which projects or products you should be working on, which order you should be tackling them in and how much time and resource should be devoted to it.

Read also: Portfolio management vs project management

What are the benefits of portfolio planning?

OK: so we’ve talked about what portfolio planning is. But why should you care about portfolio planning?

Short answer: it’s going to help you pick winning projects that will help your team shine.

Portfolio planning goes hand-in-hand with a few key benefits, and the first benefit you can expect is an improved project selection process.

Portfolio planning is all about choosing projects that are going to be a good fit for your organization. That’s why the portfolio planning process involves looking at your business goals, risks, available resources, and other criteria to help you decide which projects are going to be right for you.

The second major benefit of portfolio planning is that it helps you develop a big picture of your organizational activity. As teams get bigger and companies expand, a lot of businesses tend to lose sight of their long-term roadmap.

For example, let’s say you take on a huge project that sucks up huge chunks of your company’s time and energy.

Your team might end up spending so much time or resource on this one project, that they start to focus less on ancillary projects until somebody ends up dropping a ball somewhere.

Portfolio planning helps you prevent that and makes sure your team can juggle as many projects as you can without dropping a single thing.

Finally, portfolio planning helps improve your company’s focus on objective business goals.

Portfolio planning encourages teams to constantly assess and reassess how projects fit in with a company’s strategic goals.

If a project starts to look irrelevant, a portfolio manager can use the planning process to either reel that project back in or reallocate resources to a project that does help the company meet its targets.

What are the steps in planning a portfolio?

Portfolio planning can be used by loads of different teams in about a million-and-one different contexts. But no matter what your business does or the type of portfolio you’re trying to manage, the portfolio planning process generally includes 5 steps.

1. Assess your situation

Before you can start planning for your organization’s future, you’ve got to start by taking a long, hard look at your current situation.

If you’re looking at a financial portfolio, that would mean looking at all of your existing assets, liabilities, and investments to try and figure out what you’ve already got.

Outside of the investment bubble, this step revolves on looking at all the projects or programs your business is already involved in.

2. Create goals

After you’ve taken stock of what you’ve already got, it’s time to sit down and come up with realistic goals  around where you want your portfolio to take you.

For example, let’s say you own a construction business. You might look at your existing portfolio of building projects and decide that by the end of 2025, you want your company to be the state’s top housing contractor.

In the context of finance, this step would be more about looking at different benchmarks to decide what sort of return on investment (ROI) you’d like to achieve through your assets.

3. Come up with a strategy

The next step in portfolio planning is to determine a strategy you’d like to apply towards selecting and maintaining items in your portfolio.

In the wonderful world of investment strategy, you’d call this “asset allocation”. Asset allocation is the process of deciding what mix of asset classes you’d like to be in your portfolio so that it can match your tolerance for risk.

But again, this rule applies to any type of portfolio. At the end of the day, no matter what’s in your portfolio, you’re going to have to come up with a strategy around how many projects, what type of projects, and the amount of risk you’re willing to take on to meet your company’s goals.

Read also: The importance of project portfolio risk management

4. Choose wisely

After you’ve developed an asset allocation strategy, it’s time to choose what you should add to your portfolio.

Take a look at your goals and your allocation strategy. Then, think and choose carefully so that you can take on projects, product lines, or assets that fit in with those goals and your strategy.

5. Measure, measure, measure

Your organization, its needs and its goals are going to change over time. You’ve just got to make sure that your portfolio changes along with those needs and goals.

In order to be effective, you’ve got to constantly measure your portfolio against some kind of benchmark, report that performance, and open up regular discussions about whether anything in your portfolio needs rebalancing.

By following these steps, you’ll be able to plan a portfolio that meets your risk appetite and strategic goals.

How can you use monday.com to plan your portfolio?

So, it’s all well and good talking about how great portfolio planning is — but how do you do it?

Well, if you’re using monday.com, portfolio planning is super easy.

You see, we’ve got this handy Portfolio Management template  that gives your team concise and clear snapshots about your portfolio.

It shows you how healthy and profitable your portfolio is, what you’ve invested where, your portfolio history (if you like walking down memory lane), and so much more.

To get started with monday.com  and start smashing your organization game, all you’ve got to do is:

• Sign up for a new account (you get to try monday.com for free without having to hand over any credit card details)
• Create a board  and choose your template
• Create groups to differentiate everything in your portfolio
• Start adding portfolio items

That’s pretty much all there is to it.

By going with monday.com for your portfolio planning, you’ll benefit from a column to record who represents portfolio items, flexible data analysis that can show team members all sorts of stuff about each portfolio item, and minimal manual labor.

Our Portfolio Management template is specifically designed with automation in mind so that you can just copy and paste portfolio information from existing spreadsheets or lists. The template will onboard everything for you and do the rest.

But wait, there’s more (sorry, we love a good game show reference).

monday.com isn’t just about portfolio management .

We’re talking about a proper Work OS (operating system) that includes dozens of app integrations, multiple project views (like Kanban and Gantt chart ), iOS and Android apps, and so much more.

Sounding good so far? You can try monday.com absolutely free .

The Takeaway

OK, so we’ve kind of come full circle now. We’ve covered portfolio planning and why it’s important: without it, your team could end up wasting time on projects or programs that have nothing to do with your business goals.

That’s why you owe it to your team to use monday.com.

Only with monday.com’s Portfolio Management template  are you going to get short and sweet snapshots of your portfolio that will instantly communicate to your entire team what your organization has got, how much resource is getting devoted to it, and how that stuff all fits in with the bigger picture.

But talk is cheap, right? If you really want to reel in your portfolio and supercharge your planning, try monday.com free now .

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2.5: Strategic Portfolio Planning Approaches

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Learning Objectives

• Explain how SBUs are evaluated using the Boston Consulting Group matrix.
• Explain how businesses and the attractiveness of industries are evaluated using the General Electric approach.

When a firm has multiple strategic business units like PepsiCo does, it must decide what the objectives and strategies for each business are and how to allocate resources among them. A group of businesses can be considered a portfolio, just as a collection of artwork or investments compose a portfolio. In order to evaluate each business, companies sometimes utilize what’s called a portfolio planning approach. A portfolio planning approach involves analyzing a firm’s entire collection of businesses relative to one another. Two of the most widely used portfolio planning approaches include the Boston Consulting Group (BCG) matrix and the General Electric (GE) approach.

The Boston Consulting Group Matrix

The Boston Consulting Group (BCG) matrix helps companies evaluate each of its strategic business units based on two factors: (1) the SBU’s market growth rate (i.e., how fast the unit is growing compared to the industry in which it competes) and (2) the SBU’s relative market share (i.e., how the unit’s share of the market compares to the market share of its competitors). Because the BCG matrix assumes that profitability and market share are highly related, it is a useful approach for making business and investment decisions. However, the BCG matrix is subjective and managers should also use their judgment and other planning approaches before making decisions. Using the BCG matrix, managers can categorize their SBUs (products) into one of four categories, as shown in Figure 2.16.

Everyone wants to be a star. A star is a product with high growth and a high market share. To maintain the growth of their star products, a company may have to invest money to improve them and how they are distributed as well as promote them. The iPod, when it was first released, was an example of a star product.

A cash cow is a product with low growth and a high market share. Cash cows have a large share of a shrinking market. Although they generate a lot of cash, they do not have a long-term future. For example, DVD players are a cash cow for Sony. Eventually, DVDs are likely to be replaced by digital downloads, just like MP3s replaced CDs. Companies with cash cows need to manage them so that they continue to generate revenue to fund star products.

Question Marks or Problem Children

Did you ever hear an adult say they didn’t know what to do with a child? The same question or problem arises when a product has a low share of a high-growth market. Managers classify these products as question marks or problem children. They must decide whether to invest in them and hope they become stars or gradually eliminate or sell them. For example, as the price of gasoline soared in 2008, many consumers purchased motorcycles and mopeds, which get better gas mileage. However, some manufacturers have a very low share of this market. These manufacturers now have to decide what they should do with these products.

In business, it is not good to be considered a dog. A dog is a product with low growth and low market share. Dogs do not make much money and do not have a promising future. Companies often get rid of dogs. However, some companies are hesitant to classify any of their products as dogs. As a result, they keep producing products and services they shouldn’t or invest in dogs in hopes they’ll succeed.

The BCG matrix helps managers make resource allocation decisions once different products are classified. Depending on the product, a firm might decide on a number of different strategies for it. One strategy is to build market share for a business or product, especially a product that might become a star. Many companies invest in question marks because market share is available for them to capture. The success sequence is often used as a means to help question marks become stars. With the success sequence, money is taken from cash cows (if available) and invested into question marks in hopes of them becoming stars.

Holding market share means the company wants to keep the product’s share at the same level. When a firm pursues this strategy, it only invests what it has to in order to maintain the product’s market share. When a company decides to harvest a product, the firm lowers its investment in it. The goal is to try to generate short-term profits from the product regardless of the long-term impact on its survival. If a company decides to divest a product, the firm drops or sells it. That’s what Procter & Gamble did in 2008 when it sold its Folgers coffee brand to Smuckers. Proctor & Gamble also sold Jif peanut butter brand to Smuckers. Many dogs are divested, but companies may also divest products because they want to focus on other brands they have in their portfolio.

As competitors enter the market, technology advances, and consumer preferences change, the position of a company’s products in the BCG matrix is also likely to change. The company has to continually evaluate the situation and adjust its investments and product promotion strategies accordingly. The firm must also keep in mind that the BCG matrix is just one planning approach and that other variables can affect the success of products.

The General Electric Approach

Another portfolio planning approach that helps a business determine whether to invest in opportunities is the General Electric (GE) approach. The GE approach examines a business’s strengths and the attractiveness of the industry in which it competes. As we have indicated, a business’s strengths are factors internal to the company, including strong human resources capabilities (talented personnel), strong technical capabilities, and the fact that the firm holds a large share of the market. The attractiveness of an industry can include aspects such as whether or not there is a great deal of growth in the industry, whether the profits earned by the firms competing within it are high or low, and whether or not it is difficult to enter the market. For example, the automobile industry is not attractive in times of economic downturn such as the recession in 2009, so many automobile manufacturers don’t want to invest more in production. They want to cut or stop spending as much as possible to improve their profitability. Hotels and airlines face similar situations.

Companies evaluate their strengths and the attractiveness of industries as high, medium, and low. The firms then determine their investment strategies based on how well the two correlate with one another. As Figure 2.17 shows, the investment options outlined in the GE approach can be compared to a traffic light. For example, if a company feels that it does not have the business strengths to compete in an industry and that the industry is not attractive, this will result in a low rating, which is comparable to a red light. In that case, the company should harvest the business (slowly reduce the investments made in it), divest the business (drop or sell it), or stop investing in it, which is what happened with many automotive manufacturers.

Although many people may think a yellow light means “speed up,” it actually means caution. Companies with a medium rating on industry attractiveness and business strengths should be cautious when investing and attempt to hold the market share they have. If a company rates itself high on business strengths and the industry is very attractive (also rated high), this is comparable to a green light. In this case, the firm should invest in the business and build market share. During bad economic times, many industries are not attractive. However, when the economy improves businesses must reevaluate opportunities.

Key Takeaway

Review questions.

• How would you classify a product that has a low market share in a growing market?
• What does it mean to hold market share?
• What factors are used as the basis for analyzing businesses and brands using the BCG and the GE approaches?

Portfolio Management And Business Planning: Same Process?

Published: 7th September 2011

What is Portfolio Management?

The 5 th edition of the APM Body of Knowledge defines a portfolio management as

Protfolio management is the selection and management of all of an organisations projects, programmes and related business as usual activities taking into account resource constraints. A portfolio is a group of projects and programmes carried out under the sponsorship of an organisation. Portfolios can be managed at and organisational, programme or functional level”

Portfolio management involves screening, analyse and selecting project and programmes which fit with and organisations strategy. This involved prioritisation of the resources of the organisation on those projects which are most important to its future growth and prosperity. It includes the management of the interdependencies of limited resources, balance of risk and returns the relative timing between the project and the avoidance of capacity bottom necks. Clearly it is a process that will involve the senior management in the decision about what should be done and when. However the current APM Body of Knowledge says very little on now these processes can be implemented.

What is a Business Plan?

Business plans can be written to address the needs of two groups. The first is external investors in a business (such as a bank or venture capitalist) who want to see a return for the investment that they make and the second is an internal business plans which targets intermediate goals required to reach the external goals. This internal business plan will cover major changes in an organisation such as the development of a new product, IT system, construction of a new factory or restructuring an organisation.

What is the Business Planning Process?

The business planning process is often quite iterative and emergent, but they generally include the following steps: 1) Set an overall strategic aims for the organisation, where do you want it to be in the future, what are the overall objectives? 2) External and internal analysis to understand the current position of the organisation and the challenges and opportunities that it may face in the future. Some simple tools like SWOT and PESTLE can help here, but is is more important to look long and hard at the business and the changes in the market. 3) Strategic choice, deciding which way to move given the understanding of the organisations capabilities, challenges ahead and the likely uncertainties. 4) Establish a plan to reach this strategic goal, including the projects and programmes what will need to be implemented. However this plan need to be fluid to cope with emergent opportunities and issues which may come along at time goes by. Because of the inherent uncertainty it is often worthwhile establishing intermediate goals along the way. 5) Write down and communicate the plan so that individual within the organisation can use it a guide when making decisions on resources and priorities. 6) Monitor progress against the plan and celebrate progress towards the goals. Organisations who invest significant time in business planning can develop and illusion of control, however the key to success is often flexibility to adapt to events as they change and a willingness to experiment with different approaches until something that works is discovered.

Comparison of Portfolio Management and Business Planning

Comparing the two processes highlights some very strong similarities. Both are concerned with the deployment of the organisations limited and constrained resources to achieve a strategic goal. Both involve the prioritisation of the way these limited resources will be deployed. Both involve planning and monitoring progress towards the successful completion of the plan.

Differences between portfolio management and business planning

The primary difference between the two processes seems to be the starting point and intent. Portfolio management takes the perspective from the project and programme teams point of view and answers the question how we should deploy the resources to deliver the organisations objectives and goals. Business planning on the other had answers the same question but starting with a bigger question what does and can the organisation achieve and how can the resources be found and deployed to deliver this outcome. Is this two different processes or the same process from two perspectives?      

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Hi Paul you really explain what is portfolio management is and thank you for that 🙂

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Portfolio Planning

It follows the logic to say that time in the market is safer than timing the market.

Previously a Portfolio Manager for MDH Investment Management, David has been with the firm for nearly a decade, serving as President since 2015. He has extensive experience in wealth management,  investments and portfolio management .

David holds a  BS  from Miami University in Finance.

Christy currently works as a senior associate for EdR Trust, a publicly traded multi-family  REIT . Prior to joining EdR Trust, Christy works for CBRE in investment property sales. Before completing her  MBA  and breaking into finance, Christy founded and education startup in which she actively pursued for seven years and works as an internal auditor for the U.S. Department of State and CIA.

Christy has a Bachelor of Arts from the University of Maryland and a Master of Business Administrations from the University of London.

• What Is Portfolio Planning?
• Importance Of Portfolio Planning
• The Step-By-Step Portfolio Planning Process
• Investment Policy Statements
• Portfolio Planning: Selecting Individual Stocks For Your Portfolio

Portfolio Planning: Essential Considerations

Portfolio planning faqs, what is portfolio planning.

Portfolio planning refers to the entire process involved in constructing an investment portfolio or a group of investments that may contain various asset classes, all while considering many things, such as investor expected return objectives, risk tolerance , and time horizon.

Generally speaking,  this process  is characterized by 4 main steps:

• Defining your investment goals
• Risk tolerance and asset allocation determination
• Creating your Investment portfolio
• Monitor, report, and update/rebalance if needed

However, portfolio managers and financial advisors are usually the qualified professionals in charge of drafting a formal document that encompasses the above considerations on behalf of the client/investor.

This formal document is known as an investment policy statement ( IPS ). It is a crucial step following the portfolio planning process outlined above as it helps managers understand what their clients are looking for in terms of investment opportunities.

In this regard, it is worth mentioning that  systematic risk and expected return  are inversely related, where higher risk goes in hand with higher expected returns.

importance of portfolio planning

The investment portfolio planning process is critical for anyone who cares about strategizing and maintaining their financial goals and objectives in a clear, focused, and methodological manner.

After having an appropriate blend of risk and reward in your portfolio, tracking your progress and rebalancing your portfolio with some frequency (such as once a year) will help maximize current and future performance.

Finding a standardized portfolio-planning strategy will help you gain investment discipline, a great skill that will assure you meet your goals, all while boosting efficiency and minimizing risks during market volatility or uncertain market conditions that may tempt investors to panic, sell, and accept unnecessary losses.

The step-by-step portfolio planning process

The Planning Process encompasses the steps of determining the investment goals, and assessing the risks attached, any alternate investment opportunities, lastly, monitoring their performance. These steps are discussed in detail below.

Step 1: Defining Investment Goals

The first step in portfolio planning involves establishing your goals. During this process, the client meets with the portfolio manager to discuss the client's financial goals. The latter must be realistic and applicable to a specific time horizon.

Usually, short-term financial goals are paired with lower expected returns and vice versa. 

In order to match the best portfolio to the desired financial goal, a manager must determine where their client currently stands in terms of the 'wealth-creation-preservation-distribution' financial cycle. Returns are lower as you approach the wealth preservation phase, but future cash flow integrity increases.

Step 2: Risk Tolerance And Asset Allocation Determination

This step involves determining the client's risk tolerance and asset allocation. The former may be described as your willingness and ability to take on market volatility and can be found via a series of questionnaires conducted by the portfolio manager.

Some typical extreme risk profiles include conservative, moderate, and aggressive. One way to quantify risk tolerance is through the maximum drawdown (MDD) you are willing to accept; low-risk tolerance implies an MDD of 0-20%, 20-40% MDD for medium-risk tolerance, and >40% for high-risk tolerance.

Determining the client's risk profile also involves the discussion of the time horizon, liquidity needs, and return objectives.

On average, the U.S. stock market, as measured by the S&P 500 (dividends included), has  delivered  an average annual real return (inflation-adjusted) close to 8.5% since 1928; meanwhile, 10-year US T- bonds delivered around 2.30% annually.

Hence, aiming at a 2-7% annual real return looks pretty reasonable, depending on your risk tolerance.

The next sub-step involves matching your risk profile to an appropriate asset allocation. For example, going with the above risk profile, a possible allocation for a conservative investor or someone who wants to minimize losses at the expense of low returns but more excellent stability could be composed of 90-100% bonds (and  others ) and 0-10% equities.

A moderate investor would seek the widespread 40-60% equity and 40-60% bonds/others; meanwhile, an aggressive profile may be best suited for a 90-100% equity and 0-10% bonds/others portfolio.

Nonetheless, when undergoing the asset allocation process, your main goal should consistently be achieving optimal diversification while seeking targeted returns.

• Equity allocation = 1 - your current age
• Debt allocation = your current age

Main point: an investor's risk profile is never constant but rather ever-changing as their goals may change, particularly as you move along the 'wealth-creation-preservation-distribution' financial cycle.

Step 3: Creating Investment Portfolio

It is now time to create your portfolio and select your investment options. This is where the portfolio manager decides the appropriate investment strategy that fits your specific needs.

Deciding on the type of strategy is mainly dependent on whether the client is more into active or passive management, where the former involves more frequent buying/selling and higher transaction costs; meanwhile, the latter tries to replicate a specific benchmark via the use of passive investment such as index funds and ETFs .

Other portfolio management styles that the client may opt for are discretionary and non-discretionary portfolio management. As the name suggests, discretionary management entrusts the manager to invest at their discretion to achieve the client's desired returns.

On the other hand, non-discretionary management is where the manager gives the client advice, but it is up to the client what to invest in. This last portfolio management style is generally not recommended. 

When creating an investment portfolio, some standard products portfolio managers may offer you include but are not limited to stocks, bonds, mutual funds , exchange-traded funds, annuities, managed accounts, insurance products, bank products (such as money market accounts, CD's/ GIC ), wrap accounts, etc.

All of the products may sound somewhat overwhelming, but don't worry, investment managers exist in the first place! So always be sure to ask.

Step 4: Monitor, Report, And Update/Rebalance If Needed

This last step involves periodically monitoring your portfolio performance against your initial return objectives and the current economic landscape. Doing this will keep your portfolio and decisions in perspective.

Monitoring and reporting generally occur once the client and the portfolio manager establish a predetermined time frame to meet and discuss how the portfolio is doing about the client's risk-reward profile and, if not, rebalance the portfolio as needed.

Critical to this discussion is the continuity of the portfolio planning process. However, an investor's lifelong financial goals will undoubtedly change as he/she moves through different life stages.

As time goes by, time horizons change, along with economic variables, expected returns, and asset allocation preferences. Nonetheless, following this 4-step will always ensure you are on the right track.

Investment policy statements

As previously mentioned, the entire 4-step portfolio planning process, in addition to several other details, is described in a formal-crafted document known as an investment policy statement (IPS).

As the name suggests, this document is in charge of describing your investment goals and strategic roadmap and ultimately outlining your portfolio. The major components of an IPS are as follows:

1. Investment policy statement overview 

• Client description
• The overall purpose of the IPS 

2. Duties and responsibilities applicable to the manager and the client

3. Procedures

• This section is in charge of stating how to manage individual circumstances as well as updating the IPS

4. Statement of investment objectives

• Absolute and relative portfolio desired returns. 
• Defines objectives in terms of the client's risk, expected returns, and liquidity.
• Examples of investment objectives are capital preservation, minimizing concentration risks via diversification, maximizing quick ratio or risk-adjusted returns, long-term growth, and consistent returns to a given benchmark index for similar portfolio-strategy investments.

5. Investment constraints

• As a textbook definition, having liquid assets implies an inability for buying and selling actions to affect the securities market prices or the bid-ask spread . 
• Cash requirements by clients may incline them into wanting to invest more in very liquid investments.
• Regulations on asset allocations, market regulations, investable asset classes, etc
• Tax implications depend on the type of investment account the client holds, the client's investment tax jurisdiction, etc
• Tax implications, such as capital gains tax, may influence how a portfolio's assets are chosen and allocated.
• A longer time horizon equates to higher risk, such as lower liquidity, but greater expected returns
• ESG and other responsible investing factors that influence how a portfolio is constructed 
• Circumstances surrounding portfolio construction may also arise from personal preferences such as religious beliefs or even specific market conditions.

6. Investment guidelines: Allowed and prohibited investments 

• Laying out all permissible and prohibited investments that have been authorized as per the organization and IPS guidelines. Allowed and prohibited investments should be presented in a clear and concise manner, such as in a data table.
• Selection of asset classes, use of leverage, rebalancing, credit, maturity, and concentration guidelines for each asset class should also be considered. This process defines the minimum credit quality, maturity, and exposure for each eligible investment type.

7. Portfolio benchmarks for performance evaluation

• Having benchmarks helps managers assess the client's portfolio relative performance and risk. Some of the standard measures for this include alpha, beta, r-squared , standard deviation, and sharp ratio.
• Benchmarks also help identify if your portfolio uses the best strategy, given your risk-return profile.
• The frequency of evaluation and other additional information should also be stated.

8. Appendices

• Details not mentioned in previous sections, such as rebalancing strategies and strategic asset allocation, risk hedging policies, responsible investing policies, allowed deviation from the benchmark, etc.

Real examples of the formal investment planning process/Investment policy statements can be seen in:  example 1  and  example 2 .

Portfolio Planning: selecting individual stocks for your portfolio

If unsure about how to allocate your portfolio and what asset classes to include to obtain a desired expected return,  Blackrock's capital market assumptions  do an excellent job of laying out the following:

•  5-,10-, 15-, and 20-year expected returns
• Long-term expected volatility
• Long-term correlation for various assets, ranging from China-broad and European large-cap equities to US 10+ years government bonds.

However, If you are more of a hands-on person with a high internal locus of control, there are five things you should be looking at when analyzing specific companies:

1. Stock's historical price movement:

• Look if the company's stock has outperformed other competitors over 1-, 3-, and five years. Similarly, check if the stock price movement has outperformed the overall market or benchmark over 1-5 years.
• Try and understand why a particular company's stock has been trading the way it has over the past 1-5 years. Any catalyst or bad news, perhaps?

2. Industry research

• Please do your homework and always try and understand the company's industry, its competitiveness, and the role of the company of interest in its overall industry.
• A company's 10-K filings may help understand its key strengths, weaknesses, and essential competitors.

3. Investigate the company valuation

• Some valuable metrics include P/E, PEG, P/S, P/ FCF , and EV/Sales. Comparing these ratios against their market/industry average and competitors will give you an idea of whether the company is currently trading at a historical premium or discount to itself and competitors alike.

4. Investigate the company's fundamentals  

• Good comparable metrics (against market/industry and competitors) include revenue growth, EPS growth , operation margins, ROIC or sales-to- invested capital , ROA, ROE , current ratio, quick ratio, debt-to-equity, and dividend yield.

5. Investigate how risky the company

• Understanding risk, such as through the company's beta, net debt/ EBITDA , and monthly volatility, is significant when determining an investment risk-reward opportunity.

6. Check for technicals/current market sentiment on the company.

• Researching the average analyst rating by investment banks, as well as what insiders are doing (i.e., net buying or selling activity) and institutional ownership, is significant regarding a company's momentum and prospects.

Similarly, researching how much higher or lower the company's stock is relative to its 50- and 200-day average can give you an idea of where the stock could be heading, mainly if you apply the notion of markets being mean-reverting in the long run.

• If you are knowledgeable about technical analysis and you are not a firm believer in the weak form of the market efficient hypothesis, then looking at price formation patterns and using technical indicators may help you spot a good "entry point" (i.e., point in time to buy/ start a long position )
• Alighting valuation and fundamentals with technicals will improve your portfolio's overall risk-adjusted returns.

7. Macro-factors   

• More often than not, a company's stock prices are correlated to more than just fundamentals, technicals, and valuation. 
• Economic factors such as interest rates, exchange rates, inflation, unemployment, and overall consumer sentiment play a massive role in the market and hence individual-company performance. 

Understanding at what point of the business cycle we are currently at will help you better position your overall portfolio in such a way that you may take advantage of some opportunities but also hedge against potential risks.

For example, consumer staples and healthcare companies tend to do well in the business cycle's inflationary and even stagflationary phases. Meanwhile, banks tend to do well in a rising interest-rate environment. 

Example Of How To Analyze A Company Using The Fundamental, Valuation, And Technical Analysis

If a company has higher-than-market EV/sales and P/E ratios, all while having a lower-than-market free cash flow yield, then it could be that its stock is too expensive/ overvalued .

Nevertheless, in order to check if the higher-than-market valuations are justified through fundamentals, looking at the company's revenue growth over the past 1-5-years and operating margins vs the market (and its 5-year average) may tell another story (ex. high growth but low profits are typical of growth stocks ).

Looking at the company's risk via the reported beta or monthly volatility will let you know if the stock is too risky given its current valuations and fundamentals or not

Lastly, looking at sentiment is equally important. If, for instance, the company is rated a "hold," this is not good news as investment bankers are usually biased towards buy ratings. In other words, a "hold" or "sell" rating does not have much of a practical difference.

Looking at net insider buying and price-trend deviation from the company's 50-200 week average can give you an idea of the stock's current and future momentum.

An investment manager needs to be aware of the demands, limitations, and circumstances of their clients in order to manage their portfolios successfully. To be more precise, the investor's expected return needs to match their level of risk tolerance.

It makes sense that investors should receive payment for the systemic risk they assume.

There are essential considerations that should be taken into account in portfolio planning. Some of them are listed below.

1. Asset allocation and diversification are the keys to long-term success

According to a famous paper cited by Vanguard in a research paper titled  Principles Investing Success , a proper mix of well-diversified asset holdings (i.e., asset allocation) accounts for up to 91.1% of a portfolio's returns and volatility risk over time, while only 8.9% comes from security selection and market timing.

2. It's nearly impossible to pick individual stock winners consistently.

If unsure about how to select or analyze individual stocks, it's best to stick to low-cost ETFs

3. Time in the market is a far better strategy than timing the market

According  to investment manager Capital Group, the longer you are in the market, the better are the chances of better returns as the more days missed' in the market yield steeper losses;

• An original untouched investment of $1,000 in the S&P 500 would have grown to $2,775 (excluding dividends, yielding an average annual return of 10.75%) from 01/01/09-12/31/18, compared to a $712, or 28.8% loss, if missed the 40 best days of the S&P 500.
• Over the past 91 years up to 12/31/2018, the S&P 500 yielded negative and positive returns of 27% and 73% each year, respectively. However, for 10-year periods, negative and positive returns occur only 6% and 94% of the time, respectively.

A final shocking stat that confirms the fact that timing is not essential for long-term investment success: 

• Starting to invest at the best days (market bottoms) of the S&P 500 (market bottoms) would have yielded you an annual total return of 9.16% (from 1/14/1999-12/31/2018). meanwhile, starting on the worst days (market tops) would have still yielded close to 7% over the same 20-year period.

4. An all-stock portfolio is too risky for most

Based on a backtest performed by Finimize using the online software platform  Portfolio Visualizer , it found that adding gold and bonds to an all-U.S stock portfolio:

•  Significantly reduces annualized volatility and maximum drawdown.
• Increases annualized alpha, Sharpe ratio , Sortino ratio, Treynor ratio, number of positive periods, and total gain/loss ratio, 
• All while almost returning the same annualized return as an all-stock portfolio during the same time period (01/01/1972-06/10/2021).

Strategic buy-and-hold investment thesis based on target allocation for specific asset classes based on profound research and analysis that matches the investor liquidity needs, time horizon, risk tolerance , and risk-adjusted expected returns.

Unrealized gains or losses in certain assets may cause the allocation to deviate from its target. Under such a scenario, periodic rebalancing is needed. More on strategic asset allocation can be found  here .

An investment portfolio is a collection of different financial investments, such as equity and fixed-income securities, mutual funds , ETFs , ETNs, asset-backed securities, art, real estate, and others.

Portfolios are commonly constructed based on the following principles/strategies: socially responsible investing, conservative income, aggressive growth, enhanced value, diversified asset classes, defensive, high-dividend income, hybrid, speculative, etc.

• Diversification
• Asset allocation
• Rebalancing
• Asset location (for tax-motivated reasons)

Everything You Need To Master Financial Statement Modeling

To Help you Thrive in the Most Prestigious Jobs on Wall Street.

Researched and authored by Christian Algarañaz | LinkedIn

Edited by Colt DiGiovanni | LinkedIn

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