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Mastering Portfolio Management: Understanding the 7 Interdependent Elements

This blog highlights the importance of 7 elements and their impact on portfolio management. By taking a holistic approach, organizations can optimize their investment strategies and avoid failures.

Portfolio management is a complex process that involves selecting investments, monitoring their performance, and making decisions. To ensure that an organization performs well, seven elements need to be aligned and mutually reinforcing.

The model presented here can be used to guide an organization’s portfolio management practice and to continuously improve the process. Whether it’s a restructuring, new processes, organizational merger, new systems, change of leadership, or any other type of change, the model can be used to understand how portfolio management should change, how the elements are interrelated, and to ensure that the wider impact of changes made in one area is taken into consideration.

Figure 1- The 7 interdependent portfolio management elements

Figure 1 depicts the seven interdependent portfolio management elements: decision objects, decision domains, decision menu, time, structure, humans, and rules. By viewing portfolio management through this lens, managers can gain a fresh and comprehensive understanding of the portfolio’s different components and how they interact with one another.

The four decision objects are business, investments, funds, and resources. The three decision domains or decision rooms are market, demand, and production. Each object has various options to move from one state to another, similar to a decision menu.

Time is a strategic choice present in strategy development, selection, planning, and managing investments. The use of time, such as postponing or delaying funds releases, is often overlooked or misunderstood, which can lead to missed opportunities or failures in the decision-making process. By having a clear understanding of time as a menu option, managers can avoid failures and optimize their investment strategies.

Structure refers to the way objects are organized and tied together. For example, investments can be organized in a project or product-centric way. Additionally, humans have a crucial role in portfolio management, and the key aspects are commitment, power, and behavior. The behavior of humans in portfolio management can sometimes interfere with economic rationale, thus, it’s crucial to consider and manage it.

Portfolio management rules encompass both visible ones like governance and hidden ones like principles and economics, and it’s crucial to consider all of them to make informed decisions. In our next blog we’ll dive into the key elements that shape portfolio management. We’ll be focusing on the vital role of business objects in allocating a firm’s scarce resources over time to achieve their identified goals.
Don’t miss out on discovering these essential insights to optimize your investment strategies.

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.