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0:04
We have now covered the assessment
of individual projects,
and I would now like
to move on to discuss
Portfolio Planning and Risk Management.
0:16
I will begin
with a very simple portfolio,
a portfolio made up
of only two projects,
project A, shown in blue,
and project B, shown in red.
On the chart,
you see the already familiar graph
of added value per completed milestone
that I've shown already
in a different context earlier.
So you see for each project
how value will develop
when certain milestones
have been reached.
And initially, the project A,
the blue one,
has significantly
more value than the project B.
So if project A
has approximately $95 million value
and the red one
has approximately $50 million value,
you see that the value
of the blue one is almost twice
as high as one of the red project
in the early pharmacology
part of development.
And if you would have to prioritize
one project here at this stage,
it would be project A
and becomes a very important decision
how to prioritize the project
if, for example, you do not have
the budget to develop both projects
and you have to decide on only one
and the other one has to be abandoned,
so one will be continued
and one will be abandoned.
And based on this analysis,
if you just look at the present value
now at the pharmacology
part of the development,
you would probably decide
on the blue one,
to continue the blue one
and to stop the red one.
Now you may come
to a different conclusion
if you see the entire value development.
So when you graph how much value
would each project have
after successfully finishing
a particular developmental milestone,
and you see that from phase I onwards,
the red one contributes more value
than the blue one.
And further in phase III,
the value contribution of the project B,
the red one, is almost twice
as high as for the blue one.
And therefore,
some managers might actually regard
the red project as more attractive.
So what I want to say here is that
portfolio management decisions
should not only look
at the present analysis,
it should actually engage
in that time travel exercise
and calculate future values
to make a wise decision here.
The actual decision, if you have
to decide one project
will actually depend
on the entire portfolio context.
So for the blue project,
this is more like a typical me-too project.
It has less risk, therefore,
the value is initially higher,
but also a lower sales potential,
and therefore,
it has a lower value as closer
we get to a launch
compared to the other project.
So this is what would be
a more typical me-too project, less risky,
but also less exciting
when it comes to the sales potential.
The red project would be
more like an innovative project,
more risky, and therefore,
lower value initially.
But then, if we would move to phase III
and have successfully passed
all previous phases,
possibly a very high sales potential,
therefore, a very high value.
So if you have many me-too projects,
maybe you would like to,
in this decision, support more risky,
more valuable projects at later stages
and support project B.
If you have a portfolio composed
of many risky projects,
maybe then your decision
would be to prefer project A,
the less risky one,
that has also a higher value right now.
So decisions like those
should not be made
looking at one project in isolation,
but always in the portfolio context.
This is even more obvious
when we take a look at the next slide.
