300.1 Introducing Business Portfolio Management

Many people are familiar with the term "portfolio management" in the financial sense. The term implies that you manage your money in a way that maximizes your return and minimizes your risk. This includes understanding the different investment alternatives available and picking the ones that best achieve your overall financial goals and strategy. One size does not fit all. The investment decisions you make when you are 30 are different from the ones you make when you are 55. You don't look at each investment in isolation, but in the context of the entire portfolio.

Example: You may have a bond fund that is not doing as well as your stock funds. However, you may decide to keep it because it provides balance to your entire portfolio and helps reduce your overall risk. Depending on market conditions, you may find that your stock funds are suddenly down, but your bond fund is now providing the counterbalancing strength. Likewise, you may turn down buying a "hot tip" stock because the risk is too high and the purchase would not fit within your portfolio strategy.

Example: You may prefer stocks and shares for their greater potential, but you still wish to diversify in such a way as to reduce risk. You have shares in an airline but the problem is that as the price of oil goes up the airline profits go down and so do their share values. In this case it would not make sense to buy shares in a second airline; it would make more sense to buy shares in an oil company. This way when oil is in short supply, the price goes up and so do the value of oil company shares – offsetting the fall in value of the airline shares. The point is that you need to identify the underlying drivers affecting your goals, in this case, the price of oil.

In more recent times, this same "portfolio management" concept has become popular as a way to manage business investments. At a high-level, many of the same concepts are involved. You have a limited amount of money to apply to your business. You want to manage this money as a portfolio to maximize the overall value and to allow you to reach your goals. A portfolio management process provides a way to select, prioritize, authorize and manage the totality of work in the organization or individual department. This includes work that has been completed, work in-progress and work that has been approved for the future. Further, it helps you come up with the baseline that you can subsequently use to measure how well you are managing the portfolio to meet the department's needs.

Financial portfolio management does not focus on costs, since the assumption is that expenditures will result in the purchase of an asset (stocks, bonds, etc.) or a service (trading fee, investment advice, etc.). Likewise, when you manage your work as a portfolio, you change the emphasis from the costs of each portfolio component to the value provided. If the value (and alignment) is right, the work will get authorized. If the value is not there, the work should be eliminated, cut or backlogged.

On some websites, you will find links to order books. On others, you find a professor's notes from a college class. Many others will offer consulting help. On this PortfolioStep website, you will find most of what you need to successfully establish and manage portfolios of work. Organizations of all sizes can use PortfolioStep. Smaller business units and departments will not use all of the processes and features offered. Larger organizations will be able to use much more. The larger and more sophisticated your unit or department is, the more material from PortfolioStep you can leverage. After reviewing the PortfolioStep processes and templates, you will agree that the content is unique and provides a more comprehensive picture that is not found anywhere else.

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