At Uffective, we recognise that successful portfolio management is the backbone of any organisation’s strategic growth. In this blog post, we explore a detailed conversation between Jennifer and Mark, where they dive deep into the thinking behind Uffective’s portfolio management capabilities and how they help organisations optimise value and manage risks.
Portfolio Management and Uffective
Jennifer: Why do organisations start with portfolio management?
Mark: The goal of portfolio management is simple: to ensure that the maximum value is created with the available investment resources. This involves determining an optimal balance between risks and value. Companies begin with portfolio management to manage risks, value creation, and the combination of both.
Jennifer: Let us dive deeper into these three areas. What is relevant in the area of ‘maximum value’?
Mark: There has been significant development in the concept of value. It ranges from financial value and shareholder value to strategy deployment. There was a time when only one dimension was considered value: financial value. This dimension is still important, and for that, there is really only one tool: business cases.
Jennifer: We see a lot of pushback on business cases because they are often too imprecise.
Mark: Yes, there is a saying that business cases “are full of lies.” If you define a lie as something that is not accurate, then yes, they are “full of lies”. We once reviewed about 500 business cases and found that they delivered 55% of the expected returns. We also found that 60% of the business cases delivered more than 80% of the expected returns. It is interesting to compare this imprecision with people’s gut feelings. We once asked how much value a project would deliver if completed one day earlier. The answers varied by a factor of 50. What does that mean? If one colleague thinks a project delivered one day earlier will bring 1,000 euros, and another expects 50,000 euros, this factor of 50 can lead to completely different priorities. As a result, we do not work on the most important topics first. A lot of energy is wasted. It also creates a “chase culture,” where much effort is spent chasing down whether colleagues are working on the right topics. If strong, eloquent colleagues are working on less important tasks, those less important tasks are disproportionately advanced.
Many organisations now recognize that there are more than just financial goals. They aim to meet multiple dimensions for different stakeholders. This includes topics such as the environment, climate, and human rights, as well as image, brand, and information security. This approach is based on information economics. Essentially, the relevant dimensions for a company are identified and weighted (for example, the Net Promoter Score might have double the weight of overall return). Then, each investment is evaluated based on these dimensions, which can be on a scale of 1 to 5 or on an exponential scale, such as 1, 2, 4, 8, and 16. Each investment then receives a score.
Jennifer: So, to determine value, there are two alternatives: business cases and value scores. How does this work with risks?
Mark: The classic way of managing risks is to indicate them with traffic light colours. However, in portfolio management, not much can be done with just red, yellow, and green. To arrive at more quantifiable values, the probability and impact of a risk are assessed. Examples of these risks include the project manager having insufficient time for the project, the delivered quality not meeting expectations, or a supplier being unable to deliver on time. If we look closely at these risks, we see that they primarily focus on the execution of a project. In portfolio management, it is important to know the likelihood that the expected benefits will actually materialise. Uffective has developed a separate risk module that includes machine learning models. These can predict the likelihood that a project will be successfully implemented. This information is highly relevant for portfolio management, as it is used in prioritisation and decision-making regarding project execution.
Jennifer: And what’s the benefit of Uffective knowing both the expected value and the risk?
Mark: Portfolio management was defined by Nobel laureate Harry Markowitz. He described how to achieve an efficient portfolio—meaning a portfolio in which, for a given level of risk, value is optimised, or conversely, for a desired level of value, risk is minimised. This is the risk-return trade-off. Thanks to Uffective’s “Likelihood of Occurrence” model, both dimensions can now be mapped, and these graphs can be generated. In practice, these graphs can be automatically produced when investment proposals are submitted, helping to better assess whether the current investment is close to the efficient portfolio.
Jennifer: Wow, I think this is new for decision-makers. How does this relate to the available resources?
Mark: Markowitz’s theory only talks about dollars. However, in practice, we see that not only financial budgets but also resources can be bottlenecks. But this doesn’t have to be the case. At one company, the technical department had the motto, “Technology—we make it happen,” and scalability was a top priority. This meant that if more technology was needed, they would scale up. However, this is more the exception than the rule. More often, we see that resources do not scale as easily. As one tech manager put it, “It is not the euros that create the bottleneck, but the people in our organisation.” This challenge can be addressed in various ways. For example, the necessary capacities for each role and time period can be planned. However, in practice, it is not easy to make accurate assessments. To address this, Uffective has developed modules that predict the required resources. In some cases, these machine learning models can estimate the needed time better than humans. When it comes to resources, we see a strong demand to play a kind of “Tetris.” That is, determining when something can be delivered. This is why Uffective supports scenarios where projects can be shifted in time (i.e., moved forward or backward) to balance resource capacities.
Conclusion
Uffective’s portfolio management approach combines the traditional pillars of risk management and value creation with modern tools like machine learning and predictive modelling. By focusing on maximising value while managing risks and resource allocation, Uffective provides organisations with an efficient and data-driven framework for making better investment decisions. This holistic view enables decision-makers to optimise their portfolios and ensure that they are aligned with both financial and broader strategic goals.
