Structuring Portfolio Analysis and Management to Achieve High Decision Quality

April 17, 2024

Speaker: Tony Kenck (Practical Portfolio Management)

Abstract:

Implementing portfolio management in an organization, whether as a one-off study or an ongoing practice, is challenging. One daunting aspect involves selecting the best choice of portfolio analysis method.

Multiple definitions of portfolio analysis exist—whether standalone analysis, ranking by a single variable, multi-axis graphs and bubble charts, simulation, or optimization all the way to stochastic optimization. I will describe and explain a framework tied to decision quality to help drive productive discussions and expectations.

Twenty-plus years ago, many portfolio practitioners believed that only three factors were needed to enable portfolio management: data, computing power, and visualization. My framework adds two more elements: frame and management commitment. The framework is similar to the SDG six-factor DQ framework, but alternatives smear across data and the computing model (logically correct reasoning). Visualization is an integral part of values and trade-offs.

I discuss a novel decision tree to help determine the best tool to fulfill the needs of the frame of the question or problem to be addressed. Along the way, I talk about different types of analysis and attempt to put a reasonable frame around what portfolio analysis and management mean.

In addition, it is essential to distinguish between the needs of an individual effort and developing tools and a process for ongoing work. If you are tasked with “doing portfolio,” you need clarity on expectations.