Your decisions are correct - and yet wrong.
Why up to 95% of all investment portfolios are not wrong - but mathematically suboptimal
In modern companies today, investment decisions are made with great discipline: Business cases are calculated, risks are assessed, committees make decisions and budgets are approved.
And yet one fact remains:
The economic results of many investment portfolios are systematically below their possible optimum.
Not because projects are poorly chosen. But because they are chosen in isolation.
The invisible problem
In practice, investments are almost always evaluated as follows:
- Project A: positive business case
- Project B: acceptable risk
- Project C: strategically important
All decisions are correct in themselves.
But companies do not manage individual projects. They manage portfolios.
And this is precisely where the greatest economic loss occurs:
Not through the wrong projects - but through better combinations not being chosen.
Why good projects can still cost money
Every project ties up:
- Capital
- Personnel
- Management attention
- Risks
- Time
These resources are then not available for other projects.
In a portfolio with 30, 50 or 100 projects, this results in millions of possible combinations.
Most of these combinations are never considered. Not because they are ignored - but because they are physically invisible are physically invisible.
This is not a management problem.
It is a combination problem.
A board can only decide what it can see.
If only individual projects are visible, decisions can only be made between individual projects.
What remains invisible is the true value:
The best combination of projects from all possible combinations of your potential projects.
How big is your decision space?
Number of projects in the portfolio→ 2ⁿ possible portfolio worlds
