Abstract
There is a growing suite of innovative new portfolio analysis tools available, but there are still many questions about how to turn the theories, tools and techniques into tangible profit improvements. One thing is clear, however. The results of portfolio optimization strongly depend on the quality of the standalone asset analyses that are used as input.
This paper illustrates ways of avoiding pitfalls and improving the rigor of standalone asset analyses. It also sets out methods for understanding, implementing and deriving the best value from the latest project optimization techniques.
Specifically, the paper illustrates the importance of:
Understanding the interaction between standalone asset analyses, portfolio optimization and portfolio management strategy formulation
Applying a structured framework for analyzing, planning and managing the development of projects
Using a new synergistic approach to the evaluation of critical assets that compresses decision cycles and enables a large technical-to-business team to discover potential step-changes in project profitability and more rigorously assess uncertainty
Finding a common language between the different functions involved in portfolio management, facilitating communication and constant, dynamic innovation in procedures
Building a corporate culture that understands risk and uncertainty, knows how to deal with them, and actively encourages advances in asset analysis and portfolio management practices
The combination of these techniques allows a much closer approximation to the "full, risked, probabilistic values"1 of individual assets that are required as inputs to portfolio optimization analysis. Thus, the full power of portfolio optimization can be realized, through identifying the most profitable combination of projects, making optimal use of resources and thereby driving up a company's profits.
