Portfolio Analysis

Portfolio Analysis

Portfolio analysis seek to answer two questions which are "how much of our time and money should we spend on our best products and business units to ensure they continue to be successful" and "how much of our time and money should we spend developing new costly products,most of which will never be successful?". In portfolio analysis,top management views its product lines and business units as a series of investment which it expects to make a profitable return from.

Two of the popular portfolio techniques are BCG Growth-share matrix by boston consulting group and GE/Mckinsey matrix (Developed for General electric by Mckinsey).

Advantages of portfolio analysis

1) it helps in the evaluation of each of the corporation's businesses individually by the top management and it enables them to set objectives and allocate resources for each one of them.

2) It raises the issue of cash-flow availability for use in expansion and growth

3) it stimulates the use of externally generated data to supplement management's judgement.

Limitations of portfolio analysis.

1) Defining product or market segment is difficult

2) it suggests the use of standard strategies that may be impracticable.

3) It provides an illusion of scientific rigor,when in reality positions are based on subjective judgements.

4) It is not always clear what makes an industry attractive or where a product is in its life cycle.