Tackling Risk Analysis and Asset Portfolio Optimization

Technology portfolios don't come in "one-size-fits-all" packages, so here are some guidelines to follow when deciding how best to invest your company's money


Given this knowledge, the organization can then find its acceptable level of risk and choose the portfolio that provides the best return at that level.

These frontiers can be read in two ways. First, a manager can determine the best return for a given level of risk and, second, the manager can find the lowest risk for a given level of return.

State of the Industry

Corporations use various methods of assessing technology portfolios and risk; the depth of their investigations varies widely:

* Sensitivity analyses include most likely, worst-case and best-case scenarios for any or all of the assumptions, benefits, costs and return on investment measures.

* The Total Risk of Ownership (TRO) Model provides an estimate of the potential economic impact of not doing the investment.

* The Monte Carlo simulation determines the overall economic impact of uncertainty on the bottom-line of the business case. Often, corporations perform an accompanying sensitivity analysis to determine the individual economic impact of each assumption, benefit and cost.

* Business Cases are about "risk mitigation" — reducing risk by assessing it prior to an investment decision, and comparing the risk of different alternatives in scope and implementation strategies. The comparison of multiple Business Cases (or multiple scenarios of the same Business Case) helps in selecting the Business Case that has the best value and lowest risk.

* Balanced scorecards are a good way to successfully manage projects. The scorecard approach tracks key performance indicators (KPIs) during and after project implementation, allowing the project team to take prompt actions if necessary, and minimizing the chances of project failure.

Conclusion

This analysis provides managers with a means of determining the most efficient and effective portfolio of technology for their organization. The basis is the business case, as a careful and thorough investigation of the individual technologies and their application forms a solid foundation for the remainder of the analysis. A review of this procedure will show several instances where tactical or even strategic goals, are quantified through weighting to ensure that the analysis fits the organization's particular environment. This should indicate to the reader that these analyses support effective executive action and planning; but are certainly no substitute for it.

About the Authors: Ruben Melendez is the president and CEO of Glomark Corp. and Matt Montague is Glomark's Media Relations Manager. Glomark Corp. provides methodology, training and software tools to technology vendors, and creates an economic model for the evaluation of initiatives. The authors may be contacted by e-mail at r.melendez@glomark.com, or m.montague@glomark.com.

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