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Mastering Enterprise Portfolio Management Under Uncertainty: Strategies for Overcoming the 7 Key Challenges and Making Better Decisions

How organizations can overcome uncertainty by adopting an unsatisfied mindset, hedging strategies, and shifting to variable costs while recognizing the value of acquiring better information for accurate decision-making.

Are you tired of feeling powerless in the face of uncertainty? Do you wish you could take control and make the most of the opportunities? If so, then this blog is for you.

Uncertainty is a fact of life, and it affects every aspect of our investment management decisions. Uncertainty can make us feel vulnerable and helpless. But it doesn’t have to be that way. With the right mindset, and the right strategies, organizations can thrive in uncertain times and even turn uncertainty into a source of competitive advantage.

9 Common Themes That Help Address Uncertainty

  1. Investment irreversibility. One of the most important themes for addressing uncertainty is investment irreversibility. Many organizations view investments as sunk costs that cannot be reversed. But by shifting the perception of investments from sunk costs to variable costs, organizations can minimize the impact of uncertainty and increase their flexibility. But what does this mean in practice? There are a number of distinct approaches that organizations should follow.
  2. Asset specificity. Asset specificity refers to the degree to which an asset is tailored for a specific organization’s use. This can impact enterprise portfolio management decisions by limiting flexibility and adaptability, but specialized assets may also provide a competitive advantage.
  3. Acquiring assets from external sources on a subscription basis. Organizations should focus on acquiring assets from external sources on a subscription basis, rather than building assets internally. By doing so, they can increase their flexibility and reduce their exposure to risk.
  4. Labor flexibility. Another key theme for addressing uncertainty is improved labor flexibility. Many organizations assume that labor capacity is fixed, but this is not necessarily true.
  5. External production to increase the flexibility of change and abandonment.  By using external labor as much as possible, organizations can increase flexibility and adapt to changing conditions more easily. This can include hiring contractors and outsourcing tasks to supplement or replace their existing workforce. By doing so, organizations can increase their agility and respond more quickly to changing market conditions.
  6. Timing to postpone decisions, release funds and sense need for action. Organizations can use timing in all decisions and create a postpone option on the decision menu. This means that they can delay making major decisions until they have more information, or until the situation becomes clearer. They can also release funds like venture capitalists, in rounds, and plan ahead with clear rules for abandonment. The objective is to reach the decision to abandon the project faster and make decisions sooner, reducing than the time required and using sensing systems to predict the need to intervene. 
  7. Acquiring information is another key theme for addressing uncertainty. Organizations often try to use the information that they have, without recognizing that they do not have enough of that information to make good decisions. Often, they don’t recognize the value of acquiring better information to improve the accuracy of decision parameters. This can involve conducting market research and using data analytics to forecast and predict decision parameters values.
  8. Hedge their strategic direction and link business drivers to macro factors. Organizations should hedge their strategic direction when uncertainty is too high, and go deeper by linking business drivers to macro factors such as economic, technological, and sociological trends. By doing so, they can detect new opportunities and test the consequences of their planned decisions.
  9. A curious frame of mind is essential. Finally, organizations should adopt a curious frame of mind that assumes that there are many opportunities that have not yet been discovered, and they should continuously try to uncover all of those opportunities.

In conclusion, uncertainty is not something that organizations have to approach passively. They can take a proactive approach by adopting a curious frame of mind, hedging their strategies, shifting from fixed to variable costs, using flexible labor, and more. By doing so, they can address investment irreversibility, the incomplete search for opportunities, organizational inflexibility and improve decision agility.

Allow us to offer a few suggestions…

So, what are you waiting for? Start taking control of uncertainty today and turn it into a source of competitive advantage!

In order to provide you with a quick and easy reference for the seven key challenges and suggestions for enterprise portfolio management, we have created a cheat sheet that summarizes the key points. This cheat sheet is designed to be a handy reference tool that you can use to quickly refresh your memory and stay on track when managing your organization’s portfolio of investments and initiatives.

We understand that managing an enterprise portfolio can be a complex and challenging task, and we hope that this guide will help you to navigate the challenges and develop effective strategies for success. Feel free to use it as often as needed, and don’t hesitate to customize the suggestions to fit your organization’s unique circumstances.

Investment irreversibility: This refers to the difficulty of reversing investment decisions once they have been madePostpone investment decisions until the timing is more favorable or the release of funds becomes more feasible.
Murky strategic direction: This refers to the lack of clarity in an organization’s strategic direction.Hedge the strategic direction by investing in a portfolio aligned to hedged business drivers.
Unknown probabilities: This refers to the uncertainty of outcomes due to unknown probabilities.Link business drivers to macro factors in order to gain a better understanding of the market environment.
Uncovered opportunities: This refers to the potential for new and undiscovered opportunities.Maintain a curious frame of mind, continuously scanning the market for potential opportunities.
Asset specificity: This refers to the degree to which an asset is tailored for a specific organization’s useAcquire assets from external sources on a subscription basis, rather than investing in highly specialized assets that may limit flexibility.
Labor inflexibility: This refers to the difficulty of changing labor resources once they have been committedConsider external production as a means of increasing the flexibility of change and abandonment.
Narrow action windows: This refers to the limited time available to make decisions and take action.Early detection to sense the need for action and be prepared to act quickly when opportunities or issues arise.  

Mike Gruia, Co-founder

Mike is a visionary leader in Portfolio Management, known for his deep knowledge and unique thinking. He grounds his approach in five fundamental pillars: economics principles, applied mathematics, business architecture concepts, system dynamics, and behavioral aspects. Recognized by industry experts, including Gartner, Mike is considered a pioneer in Portfolio Management. He has co-founded three companies specializing in Portfolio Management solutions, including UMT Consulting, a leader in the field before being sold to EY in 2015, and UMT360, sold to Teleo Capital in 2019. With degrees in Industrial & Systems Engineering and Operations Research from Columbia University and the Technion Israeli Institute of Technology, Mike has played an active role in shaping the evolution of Portfolio Management, challenging current practices, and anticipating future trends.