Portfolio Management
An inventory of investment opportunities is one of the most important assets a company has. What opportunities to fund is a company’s most critical decision about its future.
Figure1. – Portfolios of petroleum exploration investments opportunities created with BlitzPort and displayed in Spotfire Decision Site 7.3. Each dot and line represents a portfolio of many investments, exploration prospects in this case.
How is BlitzPort different from other Portfolio Optimization Processes?
Portfolio Optimizers based upon Markowitz-style Linear Programming techniques try to minimize portfolio risk subject to some specific resource constraints and performance goals.
- You must set your goals and constraints before you start your search for optimum portfolios.
- You may have to iterate many times massaging an “optimum” solution into one that is practical to execute and honors a strategy.
- If a new opportunity comes along or disappears, or a budget level changes, then you go back to the optimizer to get a new portfolio solution.
Businesses need Portfolio Management’s processing steps reversed!
- We must start with coherent strategies to test.
- Blitzport honors the working interests available in our opportunities and does not assume changing working interest free.
- We need to create many good, near optimum, executable portfolios according to those strategies. We must create them easily, quickly, and by the thousands.
- We need to see from those thousands of portfolios what combinations of performance levels are possible for the business.
- In most businesses, performance goals are conflicting. “We want high earnings and high growth.” We need to understand the trade-offs between conflicting performance goals. Understanding those trade-offs mean we can negotiate and set performance goals that are achievable and savvy.
- Budgets and capex limits are often one of the last and most changeable things we will know when we make plans. Even after we make plans, capex levels and option value budgets will change. With BlitzPort, we do not have to agree on goals at the beginning. In the beginning we set broad ranges of goal and resource levels. At the end of the process we can quickly and frequently make changes to capex and performance goals live in the conference room.
- Managers do not need to know the optimum portfolio.
Managers need to know which investment opportunities
are the smartest to fund.
A competitive advantage of BlitzPort is that managers can
choose a dozen separate portfolios and in seconds learn:
- Which funded opportunities are common to all those portfolios.
- Which funded opportunities are in most of those portfolios.
- Which opportunities are only sometimes funded and therefore have some option value in the inventory.
- Which opportunities are not funded in any of the portfolios
- Which strategies provide the crop of portfolios that best fit our goals
BlitzPort rearranges Portfolio Management process steps in the order businesses need to plan