Wednesday was show time!  This was the day that Todd Little and I presented our session titled Barely Sufficient Portfolio Management.  In the session we provide a brief overview of some tools we think are appropriate for portfolio management and then spend two years in the life of an online gaming company called By The Book Gaming.  The purpose of the simulation is to explore Portfolio Management through experience in a rather protected environment rather than just blathering on about ways to do it. 

We divide the attendees into four product teams who each are provided team goals as well as corporate goals.  The product teams must make investment decisions for their own team and work together to set the investment plan for the entire company.  We then simulate two years of business where we determine revenue based on their investment decisions and uncertainty which is introduced through drawing cards.

Although the simulation has some pretty high powered use of Excel and statistics, we really focus on the human and decision making aspects of portfolio management.  Some of the key points:

• Understand what your organization’s strategy is and apply that understanding when making portfolio investment decisions.  It makes absolutely no sense to fund initiatives that do not directly support your strategy.
• In a tip of the hat to Wisdom of Crowds, make sure you involve all the right people in your portfolio management decision making.  Who are the right people?  The folks that are impacted by portfolio investment decisions and who have a diversified perspective on the problems.  Just remember there is a point of diminishing returns as you make the group bigger.  Aim for a group size where the value derived from the decision outweighs the cost of making the decision.
• Understand what information you need in order to make a decision.  Seek out that information, being careful not to get trapped by irrelevant or incorrect data.
• Know when you have to really make your decision and do not make your decision until that point so that you can gather and analyze as much relevant information as possible.
• Whether we like to admit it or not, politics play a big role in decision making in organizations, especially when teams within an organization have team focused goals that are in conflict with organizational goals.  Understand which goals are the most important (this will 99% of the time be the organizational goals) and do everything in your power to accomplish those.  Then work on the award system to drive out rewarding suboptimal decisions.
• If your customers are easily accessible – use them!  Don’t assume you know everything.  Chances are you don’t.
• Regardless of how carefully you analyze and plan your portfolio, uncertainty still happens and will have a dramatic impact on your business results. You can plan for uncertainty to some extent, but you should be prepared to revisit your decisions when new information is made available. Don’t be afraid to kill a project if it no longer makes sense.

I could go into a lot more detail, but that would ruin the simulation for anyone who is interested in experiencing it.  The really neat thing about getting to run the simulation is that Todd and I are able to observe people as they try to make these decisions, which in itself is a fantastic learning opportunity.  It is especially entertaining trying to impart domain knowledge to people who have never participated in a March Madness pool.