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Efficient Frontier Charts

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The Efficient Frontier Form

Form Overview

This form is opened from the Portfolio form. The top of the form displays the portfolio name. Below the chart area there are buttons for clearing all or just the last portfolio subset point displayed, toggling the blinking on-and-off, opening the Preferences form, and toggling the legend display open-and-close.

Efficient Frontier Overview:

The efficient frontier displays the portfolios that yield the most value per unit of the attribute. For example, consider the two portfolios in the table below:

 
Return on Investment
Cost
Return on Investment/Cost
Portfolio A
750
250
3
Portfolio B
600
150
4
  • If these two portfolios were ranked based on maximizing Return on Investment, Portfolio A would be ranked higher than Portfolio B because it has the higher Return on Investment (750).
  • If these two portfolios were ranked based on maximizing the Return on Investment/Cost ratio, Portfolio B would be ranked higher than Portfolio A because it has the higher Return on Investmente-to-Cost ratio. Portfolio B yields four units of Investment Return for every unit of cost whereas Portfolio A yields three units of Investment Return for every unit of cost. In other words, portfolio B is a better value for the cost than portfolio A.

Consider the illustrated Efficient Frontier chart illustrated below. In this chart a portfolio located at the purple circle would achieve the same overall SMART score as a different project set costing significantly less (moving to the left along the horizontal arrow), and a different portfolio with the same cost could achieve a higher overall SMART score (moving up the vertical arrow).

The Maximized SMART Score-to-Cost Table below shows how the Efficient Frontier is calculated. The Projects are ranked from Highest-to-Lowest based on the "SMART Score/Cost" ratio, therefore Project Taurus has the largest ratio (best investment) and Project Aquarius has the lowest ratio (worst investment). You would pick a portfolio along the Efficient Frontier by moving down the "Cumulative Cost" column until you ran out of capital. The portfolio would then consist of all the projects above that point.

For example, if you only had $115, the portfolio would consist of all the projects above Project Cancer.

Maximized SMART Score-to-Cost Table

Project Name
SMART Score
Cost ($mm)
Score/Cost
Cumulative Cost
Cumulative SMART Score
Project Taurus 37.3 10 3.73 10 37.3
Project Scorpio 65.9 25 2.64 35 103.2
Project Leo 49.5 20 2.48 55 152.7
Project Gemini 46.2 20 2.31 75 198.9
Project Virgo 40.3 19 2.12 94 239.2
Project Pisces 34.1 20 1.71 114 273.3
Project Cancer 42.2 25 1.69 139 315.5
Project Libra 29.1 18 1.62 157 344.6
Project Capricorn 43.6 35 1.25 192 388.2
Project Aries 29.6 30 0.99 222 417.8
Project Sagittarius 48.8 50 0.98 272 466.6
Project Aquarius 32 33 0.97 305 498.6

Because the SMART value score integrates all of the important value-related attributes into a single score, using SMART score in efficient frontiers is an excellent way to compare portfolios. In the example below, the Median SMART Score versus Cost efficient frontier is displayed. Projects with the highest SMART Score per unit of cost ratio are on the left and projects with the lowest SMART Score per unit of cost ratio are on the right.

Therefore, you would pick an efficient frontier portfolio by moving upwards left to right along the curve until you ran out of capital. This, an efficient frontier portfolio includes all the projects to the left of any point along the curve.

An efficient frontier represents a single attribute dimension, thus, for example, portfolios along a Profit versus Cost efficient frontier may be far away from a Probability of Success versus Cost efficient frontier (left chart below) or a Profit versus Resources efficient frontier (right chart below). This is another reason that optimizing to overall SMART score is so powerful: it considers multiple dimensions simultaneously to give you the “best compromise” result.

Opening the Efficient Frontier Chart

Click the [Efficient Frontier] button at the top of the Portfolio form to open the Efficient Frontier chart.

The chart does not display any data when first opened.

Click on the X-axis attribute to select the X-axis label to select the X-axis data. The Y-axis data is selected in the Efficient Frontier Preferences form.

The Efficient Frontier Chart Legend

The Efficient Frontier Chart Legend consists of 2 legends: a top legend and an optional bottom legend.

The top legend displays a list of all saved Portfolio Views.

The "Pic" column displays the color-pattern combination assigned to a Portfolio View when it was created or edited.

The "Sel" column is used to display the projects contained in a Portfolio View. Click the row in this column for the Portfolio View projects that you want displayed. A checkmark appears in the column next to the name of the Portfolio View selected. Clicking the checkmark unselects the Portfolio View.

The "Views" column displays the Portfolio View names. Double-clicking on a Portfolio View name opens that Portfolio View in the Portfolio View form.

Single-clicking on a Portfolio View name in the "Views" column displays that Portfolio View as a bubbles in the Efficient Frontier Chart area in relation to the Efficient Frontier line and the selected X-Y attributes. The Portfolio View uses the assigned color-pattern combination, and you can display multiple Portfolio Views simultaneously.

The bottom (optional) legend displays a list of all the projects (ordered alphabetically) in the Portfolio View selected by clicking in the "Sel" column. The name of the selected view is displayed at the top of this legend. This legend is not displayed if no Portfolio View has been selected or only the Portfolio View legend has been selected for display in the Efficient Frontier Chart Preferences form.

The Efficient Frontier Chart Area

Changing the X-Axis Attribute: You can change the X-axis attribute parameter by clicking on the axis label, and selecting the attribute from the pop-up menu.

Comparing Portfolio Views in the Chart Area: Clicking on a Portfolio View in the Legend displays that portfolio view in the chart so that you can compare it in relationship to the efficient frontier and other portfolios. The Portfolio Views are displayed as bubbles in the Efficient Frontier Chart area in relation to the Efficient Frontier line and the selected X-Y attributes. The Portfolio Views are displayed using the assigned color-pattern combination, and you can display multiple Portfolio Views simultaneously. The objects in the charts are interactive:

Other Portfolio View Display Options: There are many other display option settings in the Efficient Frontier Chart Preferences Form such as:

Checking the [Display High/Low Frontiers] checkbox in the Preferences form displays the efficient frontiers calculated from the maximum and minimum values. The “Maximum” line represents the efficient frontier if all the projects reached their maximum attribute value and the “Minimum” line represents the efficient frontier if all the projects reached their minimum attribute value.

The Efficient Frontier Chart Buttons

[Blink On/Off] button: Toggles the blinking of the displayed Portfolio View bubbles on and off.

[Clear All] button: Clears all displayed Portfolio View bubbles.

[Clear Last] button: Clears the last selected Portfolio View bubble.

[Modify] button: Opens the Efficient Frontier Chart Preferences Form.

[Show/Hide Legend] button: Toggles the the display of the legend(s).

[Close] button: Closes the Efficient Frontier Chart Form.