The Portfolio Monitoring Tool allows you to create and model a virtual portfolio of innovation projects. The virtual portfolio can include your existing core business, as a whole or as a collection of discrete projects with different models of forecast investment, growth and performance. You can also model current investment projects that are underway, or template profiles for new types of investment projects you might undertake. Each project or profile can be modeled with different performance attribute ranges and then modeled at the aggregate portfolio level. The portfolio model is then simulated with randomized inputs in a Monte Carlo simulation that produces statistically accurate forecasts of the probably outcomes based on your modeled assumptions and provide insights to which assumptions have the highest sensitivity. There are several compounded probabilities within a project and across a portfolio that make it very difficult for even highly analytically-minded people to simply evaluate the models in their head. Using a modeling tool with analytics can help provide more realistic insights and make key assumptions explicit and visible.
When investing in new growth or innovation projects, the only thing that you know for sure is that no outcomes are certain, and many projects will not succeed. Depending on your performance modeling assumptions, a single project’s most likely outcome may be failure (which is quite often the case). By investing in a portfolio of investment projects, you increase the chances that some projects will succeed and perform well enough to cover the investment cost for the failed ones. Modeling the portfolio can therefore provide some important insight in how to manage your innovation investment portfolio.
Setting and managing realistic growth expectations – One of the most common mistakes companies make when investing in innovation and new business growth, is applying mature, core business expectations to highly uncertain opportunities. The portfolio modeling results can help set more realistic expectations on the probable outcomes or time-frame to achieve a target outcome.
Setting investment fund or number of projects – The portfolio modeling can also help forecast the aggregate portfolio investment before it becomes self-funding or the number of projects of certain profiles required to achieve enough projects that survive to maturity.
Establishing portfolio performance targets – Finally, understanding how different assumptions in the models affect the outcomes can help you define the appropriate project and portfolio level performance targets to track and manage progress towards your desired goal.
