Applying financial portfolio analysis to government program portfolios

• Main Author: Botkin, Bradford L.
• Other Authors: Hensel, Nayantara
• Published: Monterey, California. Naval Postgraduate School 2012
• Online Access: http://hdl.handle.net/10945/3481

Government agencies and the Department of Defense in particular, require decision-support tools when making funding decisions regarding portfolios of programs or projects. Government agencies have had some success in applying Project Portfolio Management (PPM) when choosing among potential programs; however, once programs are underway, financial managers routinely face funding optimization decisions similar to those of private-sector stock market portfolio managers. While private-sector portfolio managers rely on "stock-price" based financial portfolio analysis to aid decision making, government financial managers lack an equivalent "stock-price" metric for program or project performance. This research suggests the government's Earned Value Management System (EVMS) metrics may be used to generate a suitable proxy with which financial portfolio analysis can be conducted. From this analysis, risk and return trade-offs can be quantified and used when making portfolio decisions. An example using representative EVM data is presented. Recommendations on the possible applicability and limitations of the technique are discussed.