Understanding the Concept of Portfolio Management
Introduction. Although not directly related to PPM, portfolio management is basically different from other management practices. However, both are based on the same basic principle that value is associated with each investment and they both involve the evaluation and decision-making process of each investment.
Program and project portfolio management (Pfm) is essentially different from business and management program planning. Business and management program planning involves planning a long-term project by evaluating the various requirements and resources, identifying risks and costs, determining a cost and time schedule, and evaluating the results of the project. Unlike an operational project, which is executed according to the planned schedule, an operational investment involves multiple decisions, including identifying risk, estimating costs, estimating productivity, and making financial projections. A portfolio investment may involve multiple projects; for example, an organization may choose to invest in research or development projects, manufacturing plants, manufacturing technologies, land-grants, or patents. The overall performance and return rates of the portfolio investment depend on the selection of projects. A portfolio management practice is a strategy that helps an organization determine the investments that are most beneficial and the types of projects that are most likely to yield the highest return.
Portfolio management practices may also be used to generate future earnings from investments, such as making certain investments as a portion of a portfolio. This type of investment strategy is generally applied when the return rate of a given investment is expected to be low and/or the level of risk is expected to be high.
While portfolio management primarily deals with the valuation of assets, its application also includes the preparation of investment plans and the analysis of investment data. In addition to asset evaluation and allocation, the investment plans of an organization may include the creation of a strategy for achieving future growth and development of the organization. An effective investment strategy allows organizations to invest in the productive areas of their operation or in their strategic capabilities. Through careful evaluation and analysis, an investment strategy enables an organization to plan appropriately to realize maximum returns on all of its investments.
Investment plans are necessary to ensure that an organization maintains an optimal level of investment returns. They also play a significant role in the protection of the financial interests of the investors, particularly the organization’s owners. Thus, portfolio management is not a technique that can be implemented on its own. However, in certain circumstances, such as when the organization is undergoing a transition, a change of control, or a merger, it becomes appropriate to use a company’s investment management system and strategies. For example, the investment manager might want to provide the information required to help the new management team to build an appropriate portfolio.
A number of investment management systems have emerged in recent years to address the needs of organizations that have various levels of investment management responsibilities. Some of these management systems include:
Most investment management systems use some of these techniques. In addition to investment management systems that require the application of techniques such as market forecasting and financial modeling, they also require management systems that evaluate the performance of the portfolio and its current and future performance.
Portfolio management systems are important tools in the overall development of an organization’s productivity. In addition to ensuring that the organization is well-managed, portfolio management systems also assist in the planning of activities related to business plans and budgeting. By organizing the management process and the allocation of resources among various projects, they ensure that the resources are available to meet customer demands. portfolio management systems also help companies develop an effective strategy and improve the ability to make better decisions.