Portfolio Management Insights: Opportunity Gap
November 24, 2015 Leave a comment
This morning’s R&D had me reviewing some previous work on Expected Commercial Value calculations. One of the flaws or should I say weaknesses at lower levels of Portfolio Management Maturity is a the assumption that delaying a project only shifts to the right when a project yields value. This however is most often not the case. When evaluating each project’s value for a Portfolio one needs to account for both NPV of funds expected, NPV of funds received, AND also a potential reduction is value received as a result of a short recovery period and project lifecycle.
Consider this first scenario: Buying a new automobile. While the utility may not change on a new vehicle purchased towards the end of the year its market value certainly drops as one gets closer to the next model year. Another scenario: The utility value is sensitive to when in the lifecycle a initiative is executed (e.g., having a large shipment of ice cream available for summer in New York vs. fall).
As such Enterprises with more mature Portfolio Management capabilities will consider this factor in portfolio decisions.