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Rationalize a Portfolio of Investments

As a portfolio manager, use this article to guide you in prioritizing, evaluating, and rationalizing the investments in a portfolio.

Portfolio planning is an iterative process. The portfolio manager performs the following tasks that are based on review feedback from stakeholders and others in the company:

• Prioritization. Assigns a priority to the investments based on initial default or rule-based criteria.
• Evaluation. Associates the investments with company values such as cost, benefit, or return on investment (ROI).
• Rationalization. Justifies the existence of the investments that are selected by taking into account all of the information from prioritization and evaluation. Not all information that is used during rationalization is from CA Clarity PPM. The experience and advice of stakeholders are important considerations and often outweigh the rankings of investments that you indicate by prioritizing or evaluating.

When creating a portfolio, the portfolio manager initially prioritizes the list of investments using ranking rules that are based on business needs. To evaluate the portfolio, the portfolio manager creates different what-if plans and reviews the waterline views of the plans with the stakeholders. The evaluation of the portfolio uses information from all parts of the business. Based on stakeholder feedback, the portfolio manager reprioritizes the investments and reconfigures the waterline views. When the rounds of prioritization and evaluation are complete, the portfolio manager rationalizes the portfolio with stakeholders. Together they decide which investments to pursue and which ones to defer for the portfolio time horizon.

The following illustration shows how prioritization, evaluation, and rationalization overlap. For example, information that is gathered from either evaluation or rationalization can cause the prioritization of a portfolio to change.

This scenario shows how one company looks at its portfolio of investments and how it decides to thrive in the marketplace.

Example: Portfolio Planning

Raj Mehta is the new CIO for Forward Inc., a large holding company which owns many manufacturing companies. Raj reports to Lauren, the CEO who has been hired to bring a fresh perspective to the organization. Raj has worked for Forward Inc. for two years and Lauren was hired outside of the company. They have a directive from the Board of Directors to improve the company revenue stream in three years by 10 percent.

Raj and Lauren are preparing the IT budget planning for the upcoming fiscal year. In their first planning meeting, Lauren provides the following list of investments for the IT portfolio:

• Administrative Expense System
• Back-Office Financial System
• Cloud Based Order Intake
• Database Upgrades- Oracle
• Enterprise Time and Attendance
• Federated Security
• GUI Redesign- Supplier Internet System
• HR System Upgrade
• Interface to Material Supplier
• JIT (Just in Time) System Upgrade

The list is in alphabetical order. Lauren does not indicate which projects are more important. She wants Raj to prioritize the investments using the rules that are currently in place.

To complete the portfolio planning process, Lauren and Raj must complete the following tasks:

• Prioritize the portfolio.
• Evaluate the portfolio.
• Rationalize the portfolio.