:AACE CERTIFICATION 2009-2010:

Learning on Portfolio Management

I am recently working with Corporate Business Development department who visit Sorowako site to give us an overview of the new Capital Project selection across Vale Inco organization called Capital Portfolio Management Process and gain more inputs on how the process going to be. This process is relatively new across the organization but in the past each site area has its own system and specifically at Sorowako site, we called it Risk Capital Ranking process. It’s a very good opportunity to setup a portfolio management system as well as learn Portfolio Management Process implementation in the real work compare with theory in the books. The discussion comes up with definition of Portfolio Management process as per corporate definition, how it works, how the process is, what the objective is & who will be the person accountable.

What is the portfolio management in theory? According to Ken Crow, DRM Associates-http://www.npd-solutions.com/portfolio.html, portfolio management is used to select a portfolio of new product development project to achieve the following goals:
- Maximize the profitability or value of the portfolio
- Provide balance (risk & reward)
- Support the strategy of the enterprise

In the meeting discussion, the conclusion is that the portfolio management in Valeinco is a typical process for the top management through portfolio view decide which projects must be accelerated, kept running and decelerated based on project profitability rating, risk and align with the corporate strategy. Project portfolio is the way to improve project selection according to the strategic plan and focusing on the global result. In the past, the strategic plan only on isolated projects resulting difficulties to the top management to decide the way to go.

Its obvious that the portfolio management theory are commonly used across all of the company around world, it doesn’t matter what the definition is, but the main objective is to have a common tools for decision making.

How the portfolio management works? The following chart explain briefly the process within the organization (The picture is not clear enough).

(Chart is used with Permission)

Portfolio management focus on the project life cycle and portfolio prioritization and keep day to day project management by respective project management area. Project generation is production site responsibility to identify the correct use investment with produce a project justification based on strategic plan align with corporate strategic imperatives. In the pipeline management stage, site management and corporate will determine the methodology to analyze each project and attribute a grade. The result of pipeline management is providing the ranking of the project forms by their groups as related to the portfolio as whole.

In the portfolio management level, the corporate collecting all the projects from all sites and compete and evaluate against others using portfolio tools and referring to the fund available. The outcome is the project selected that offer the higher profitability with risk consideration, align with corporate strategic and limitation on the availability of the capital fund.

The following chart is an example of project prioritization based on the strategic alignment versus return on investment. Project in the grey area is automatically prioritize to go ahead and project is the yellow or low priority areas needs to be further justified in order to remain funded or even automatically cancelled due to no risk or no benefit for doing it (the picture is not clear enough).

(Chart is used with permission)

In summary, portfolio management process is a very powerful tool for the top management to the goal and objective and makes any decision and not limited to the capital project by balance the company goals: risk vs. profitability, new products vs. improvements, strategy fit vs. reward, market vs. product line, long-term vs. short-term.

We are all agreed to implement portfolio management process for capital project selection at this stage and looking for possibility to implement is into all aspect of decision making. CCE training is a very good example on implementation of portfolio management process. In the future for the next participant from PT Inco, the decision to go or not go into this training shall be based on the profitability return by calculate the Return on Investment (RoTI) and align with department goal & objective. To make sure the Return on Investment is achieved as then postmortem review shall be implemented.

Sorowako, November 14th, 2009

Muhammad Asril

# posted by Asril Muhammad @ 11/14/2009 02:34:00 PM