Steps of the Project Portfolio Process


The multiple investment avenues are managed by portfolio management under an overall umbrella referred to as a portfolio. A portfolio is a mix of stocks, commodities, bonds, real state, cash as well as cash equivalents.  It is a collection of overall financial investments held by individuals for making profits. 

Steps of the Project Portfolio Process

There is a complex process involved in portfolio management, therefore, following steps need to be followed in a careful manner. 

Identification of objectives and constraints

The process of portfolio management initiates with the identification of objectives as well as constraints of investors. Investment objectives are outcomes in respect of return and risk that the client desires to achieve whereas any limitations on investment decisions are constraints. The risk-bearing capacity of an investor as well as his/her ability to withstand volatility should be well-known for effective portfolio management. Investors may be either willing to have maximum return at minimum risk or capital appreciation. 

Selection of asset mix

The second major step involved in the portfolio management process is the identification of distinct assets that can be included in the portfolio within the goals and risk appetite of investors. Relationships among the securities need to be clearly specified here in this step. A portfolio may be composed of a mixture of equity shares, preference shares, bonds, debentures, and many more. The proportion of various assets to be included in the portfolio is determined as per the risk-bearing ability and investment limit of the individual.  

Portfolio strategy formulation

Once an appropriate asset mix is selected, the next step in the portfolio management process is forming the right strategy of the portfolio. There are 2 options available for appropriate portfolio strategy creation: active portfolio strategy and passive portfolio strategy. The active strategy of a portfolio is one that seeks to make a superior risk-adjusted return via adopting as per the market timing. The strategy switches from one sector to another in accordance with the scenario of the market, security selection or a mixture of all these. Whereas, passive strategy on the other hand has a pre-determined risk exposure level. There is a broad diversification of the portfolio that is strictly maintained. 

Security analysis

Security analysis is the step where an investor selecting securities involves himself actively. This step involves the analysis of securities from risk and return perspective which is done with the help of the required information. Factors such as price, possible risk and return, growth potential, and volatility are all evaluated of securities for the portfolio. Risk and return are both co-related to one another such that for every amount of return, there is always risk associated with it. Security analysis enables in easy understanding of the risk and returns nature of specific security in the market. There are basically two analyses that are done under security analysis which are micro analysis and macro analysis. The microanalysis is an analysis of one script and an analysis of market of securities of macro analysis. 

Execution of portfolio

The execution of a portfolio plan is the next step in the portfolio management process which is done once securities for investment are chosen. Portfolio plan executive relates to purchasing and selling of particular securities in given amounts. It is one of the crucial steps in portfolio management as it has a direct influence on investment results. The transaction cost involved in portfolio execution can bring down the overall performance of the portfolio. Various elements of transaction cost are explicit costs such as fees, commission, taxes, etc., and implicit costs like opportunity cost, bid-ask spread, market price impacts, etc. Therefore, it is a must to ensure that the portfolio executive is properly timed and well-managed. 

Revision of portfolio

Portfolio revision is a major step utilized by portfolio managers for keeping portfolios within the goals and objectives of investors. After an optimal portfolio is constructed, portfolio managers keep the portfolio under close supervision to make sure that the portfolio remains optimal in the coming time. Activities such as adding or removing scripts, moving from one stock to another, or from stock to bond and vice versa take place under portfolio revision for earning good returns. 

Evaluation of portfolio

Portfolio evaluation is the phase where the performance of the portfolio is measured by the portfolio manager. Managers over a selected time period need to examine the portfolio performance. Examination of performance includes checking the relative pros and cons of the portfolio, risk and return factors, portfolio management adherence to publicly stated investment objectives, or a combination of all these. The actual amount of return earned and risk borne by the portfolio over the investment period is quantitively measured while assessing risk/return criteria. Portfolio evaluation is a very useful step that helps in enhancing portfolio management quality on a continuous basis by providing feedback.