Chris Lovelock shares how portfolio management thinking is evolving along with available technology to optimise a portfolio for improved strategic value from capital.

1. www.advisian.com
Portfolio Optimisation
An overview
Chris Lovelock
OOGC Muscat
2 December 2018

2. The need
High value portfolio management
Optimization and the efficient frontier
Tools and Delta-MCA
01
02
03
04
Portfolio Optimization

3. The need
Companies are focused on extracting maximum value from their
capital - need to make every dollar count and do more with less
Finite
funds
Increasing demand
for returns
Returns vs.
asset needs
+ + =

4. The need
They seek:
• Business value in the management of an aging asset
• To balance financial projects against non-financial projects
within a finite budget whilst meeting shareholder expectations
to see a return on their investment
• A portfolio of projects that each demonstrate their merits for
selection
• Assurance that the portfolio will deliver the promised value

5. High-value portfolio management
Characteristics of creating business value
• The capital approval process is well defined
and understood.
• Each project clearly and consistently defines the
benefits to be delivered in line with the business
strategy.
• Portfolio optimisation is applied.
• Customised portfolios ensure changing needs
can be managed in a controlled manner.
• The organisation shifts from project metric targets
to delivering strategic value from the portfolio.

6. Portfolio Optimization
Introducing the Efficient Frontier
0%
20%
40%
60%
80%
100%
0 10 20 30 40 50 60 70
StrategicValue Capital Spend
Efficient
Frontier
The ‘Efficient Frontier’ of
a particular group of
projects shows the
maximum value that can
be extracted for any given
capital spend
Optimisation gives best ‘bang for buck’
Our example portfolio:
• $65M of capital projects
• $51.3M possible NPV
• 283 possible risk reduction
points

7. BUT we only have a budget of $20M
With this budget we can deliver:
• $20M of capital projects
• 70% of the strategic value which
equates to…
• $30.7M NPV and
• 159 risk reduction points
Portfolio Optimization
The ‘Optimised’ portfolio
70%
of the value for of the spend31%
0%
20%
40%
60%
80%
100%
$- $10 $20 $30 $40 $50 $60
StrategicValue
Capital Spend Millions
Optimised
Portfolio

8. BUT the boss has 3 CRITICAL projects
they ‘really’ need to do this year
Thus, we force these 3 projects in and
re-run the optimiser:
• $20M of capital projects
• 50% of the Strategic value which
equates to…
• $27.7M NPV and
• 110 risk reduction points
Portfolio Optimization
Force-in projects
25%
less value for the same spend
0%
20%
40%
60%
80%
100%
$- $10 $20 $30 $40 $50 $60
StrategicValue
Capital Spend Millions
Agreed
Portfolio

9. 1. Forcing projects into/out of
portfolios destroys value (but
is sometimes necessary)
2. We could have achieved similar
business outcomes with half the
capital spend.
Portfolio Optimization
Retaining value
Consider carefully before
overriding the optimiser
0%
20%
40%
60%
80%
100%
$- $10 $20 $30 $40 $50 $60
StrategicValue
Capital Spend Millions
25% value lost through
forcing projects in/out
$10M extra capital
required

10. Portfolio Optimization toolkit
• A tried and tested portfolio optimisation and
value management methodology backed by a full
suite of ‘how to’ policies and procedures.
• Portfolio management audit tool to
systematically appraise the current organisational
maturity in the area of portfolio and projects
management.
• Specialist in house tools (e.g. DELT∆-MCA which
allows for semi-quantitative optimisation of
portfolios and exploration of the sensitivity of
project selection from business driver changes).
• Extensive knowledge from working to deliver
business value from project portfolios.

11. Portfolio Optimization toolkit
Customized
constraints
Dynamic ‘slider’
bars
Scenario
analysis
Delta-MCA an in-house tool: Supported by detailed, easily extracted data sets

12. Portfolio Optimization
Outcomes
Planning
• Clarity of business drivers for capital selection
• Control of the balance between risk reduction
and financial projects in the portfolio
• Improved generation of project ideas for
potential consideration in the portfolio
• The portfolio only contains clearly justified
projects that demonstrate their merits

13. Portfolio Optimization
Outcomes
Delivery
• Portfolio level tracking of progress and spend
• Ability to adapt the portfolio to respond to the changing
business environment and emerging needs
• Better assurance in delivering the capital plan and achieving the
benefits
• Senior management team appreciation of the value of the capital
plan
• Less management distraction from capital surprises
• Attraction and retention of high calibre personnel
• Visibility of forecast and delivered benefits from the capital plan
• Clarity/visibility of risks within the portfolio that apply at the
business level

14. Portfolio Optimization
Outcomes
Outcomes
• Ability to demonstrate to stakeholders an
improving risk profile of the business
• Ability to attract capital to the business
Planning Delivery Outcome

15. • Delivery of value becomes the key
measure of success
• Customised portfolios – to retain value and
allow rapid response to emerging needs
• Taking the journey to improve capital
effectiveness
• Case studies
High Value Portfolio Optimization
Further discussion

16. Do you experience any of these?
• Difficulty reaching agreement on the make up of the portfolio
• Misalignment of corporate and plant level expectations
• Frequent changes to the portfolio and project scopes
• Project teams finding it difficult to get buy-in for their project
• Weak generation of project ideas
• Capital budget underspend and carry-over
• Capital surprises and management distraction away from other core
activities

17. For more information
CHRIS LOVELOCK– Improve Contract Manager
E: chris.lovelock@worleyparsons.com
M: +61 415 129 105
STEPHEN WOLSELEY– Business Development Manager, Oman
E: stephen.wolseley@worleyparsons.com
M: +968 9649 8282

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