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Efficient Frontier Charts

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Comparing Portfolios Against Efficient Frontiers

The efficient frontier represents the maximum output (such as profit) that can be achieved for a given input (such as cost). To manually find the efficient frontier for portfolio, you would take the output value for each project and divide it by its corresponding input value and then order the projects from highest to lowest. For example, ordering a portfolio by profit/cost would rank the projects by the most units of profit per unit of cost. In the Efficient Frontier Chart below, Project Columbia has the highest profit-to-cost ratio and Project Cetus has the lowest profit-to-cost ratio.

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 Profit versus Resources efficient frontier (left chart below) or a Probability of Success versus Cost 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.

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. Next, we’ll see how to compare your optimizations and portfolio views against different efficient frontier.

1. Return to your Portfolio form and Click on “the [Efficnt. Frontier] button to open the Efficient Frontier Chart.

2. The Efficient Frontier Chart opens without any data displayed. Click on the X-axis attribute to select the X-axis attribute for display.

3. The Efficient Frontier Chart will then display the efficient frontier you selected. The legend will show any saved Portfolio Views.

4. 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. Clicking in the “Sel” or “Pic” column checks the row and causes the projects associated with the checked Portfolio View to be displayed in the legend.

5. The objects in the Efficient Frontier Chart are interactive:

6. There are many display options in the Efficient Frontier Chart Preferences form that allow you to modify the chart display and the data display.

7. 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.

8. By assigning different attributes to the axes, it is easy to instantly compare portfolios in different efficient frontiers as shown in the examples below.

Next: Project and Portfolio Tracking Using Baselines