Recommended Solutions - PDF document

1 Recommended Solutions for Three Proble
Recommended Solutions for Three Problems Commonly Experienced During Portfolio Optimization: Too Much Mandatory, Reliability Goals Not Achieved, and High Risk Investments Not Funded By Larisa Malewski & Jenna Miller, UMS Group UMS Group Inc., All Rights ReservedUMS Group Strategic Asset Management Planning Thestrategydefinedthismodulefiltersthroughallriskprioritizationandinvestmentoptimizationdecisionsmadesubsequentstepstheprocessdetailedneedsassessmentphase,alignedwithcompanystrategy,shouldtakeplaceviaRiskRegisterandAnalysistoolOurSpendOptimizationSuiteusestheRiskIdentificationandOpportunities(RIO)modulecapture,score,andprioritizebusinesslevelrisksandopportunitiesthatcanmitigatedaddressedviaproposedinvestmentsolutionsThisconceptcriticalunderstandingpotentialgapstheproposedinvestmentportfolioandhowthegapsshouldfilledgoingforward,ensuringlinkagebetweenrisksandopportunitiesandplannedsolutionscomplextradeoffsthatoccurwhendecidingfundnotfundeachproposedinvestmentThisarticleservesexamineandrecommendsolutionsthreecommonproblemsfacedutilityinvestmentplannerswhenanalyzingandinterpretingprojectportfolioresultsusingoptimizationtoolSpecifically,willexploregreaterdetailtheissuestoomanymandatoryinvestmentstheportfolio,reliabilitygoalsnotachieved,andhighriskinvestmentsnotfundedgivenbudgetaryconstraintsBeforetacklingtheseissues,worthwhileprovidesomecontextsettingourviewpointsTheanalysisandrecommendedsolutionswithinthisarticlefollowUMSGroup’sinvestmentplanningandoptimizationmethodologyutilizedourSpendOptimizationSuite(SOS)applicationItcriticalthatunderstandtheriskandinvestmentplanningprocessitsentirety,allfourstagestheprocesscontributetheachievementeffectiveinvestmentdecisionmakingresultsandhowspecificallyaddressthesethreeidentifiedoptimizationproblemsThefirststagesettingcompanystrategyusetheStrategicAlignment(SA)moduletheSOSsetthecompanystrategyandrelativeprioritiesstrategytwohierarchicallevelstheStrategicObjectivelevel,toplevelstrategy,andtheSuccessCriterialevel,sublevelcriteriawhichcompriseeachoverallStrategicObjectiveFormostgas,water,andelectricutilities,difficultinvestmentpl

2 anningdecisionsaremadeeachbudgetingcycle
anningdecisionsaremadeeachbudgetingcycleFollowingassetmanagementbestpractices,companystrategiesandobjectivesshouldalignedtheinvestmentdecisionmakingprocessandrigorousprocessforinvestmentanalysisandoptimizationtheproposedportfolioinvestmentsshouldtakeplaceWiththelargecapitalandO&Mbudgetsandthenumerousinvestmentsthatareproposedeachbudgetyear,investmentanalysisandspendoptimizationtoolusuallyrequiredbestanalyzethe Do you have too many mandatory projects, such that the remaining discretionary budget is too limited to be able to funnel it towards investments that will help you achieve your goals? Are there enough reliabilityfocused projects selected for funding to allow you to meet your targets? Or, for that matter, even enough proposed for funding? Do you have so many highrisk investments that you can’t fund them all within the budget constraints? CONTEXT SETTING INTRODUCTION UMS Group Inc., All Rights ReservedUMS Group Strategic Asset Management Planning withthehighestvaluescoreaboveparticularbudgetcutofflineThisonedimensionalapproachhasbuilterrorandmaynotproduceoptimalportfolioinvestmentswhendealingwithmultipleconstraintsThisconceptoptimizationusingmultipleconstraintsbecomesparticularlyimportantwhentryingachievebothbudgetandreliabilitytargets,discussedlaterNowthatthekeymethodologiestheunderlyingprocesshavebeenexplained,canexplorethreecommonlyexperiencedproblemsthatmayoccurduringportfoliooptimizationOverthepastfourteenyearsworkingwithourutilityclientsoptimizetheirinvestmentportfolios,haveheardmanythesameissuesbeingraisedNamelyhavesomanymandatoryinvestmentsthatnearlyimpossiblefocusdiscretionaryspendHowensurethatarealsofunnelingfundstowarddiscretionaryUMSGroup’sSOSapplicationutilizestheInvestmentOptimizer(IO)ModuleperformtheseoptimizationfunctionscriticaldistinctionbetweenbasicprioritizationandoptimizationneedsunderstoodInvestmentoptimizationfocusesselectingtheoptimumbundleprojectsprogramsthatmaximizesthestrategicvalueminimizestheriskexposurewithinonemoreidentifiedconstraintsThemostcommonlyappliedconstraintsarebudgetaryones,suchtotalbudget,capitalbudget,O&Mbudget,etc

3 butmayalsoincludespecificreliabilityandr
butmayalsoincludespecificreliabilityandresourceconstraints,allwhichcouldappliedsystem,regionalbusinessunitlevelEssentially,fundedinvestmentsarefittedtogetherlikepuzzlewithinthesesetconstraintscollectivelymaximizethetotalvaluetheportfolioTraditionalprioritizationtechniquessimplyrankinvestmentsbasedvaluescoresimilarderivative,suchvalueperdollarFollowingtheserankingmethodologiestheselectedprojectsarethoseAftertheriskmanagement/needsassessmentphase,proposedinvestmentsolutionsandcomprehensiveinvestmentscoringeachsolutionneedcapturedTheInvestmentDefinitionandScoring(IDS)moduletheSOSapplicationcapturesproposedinvestmentinformationandscoresinvestmentsacrossallsuccesscriteriaelementscompanystrategyOurmethodologyscoresinvestmentsacrosstwodifferentdimensions,valueandriskdeferraleachinvestmentanalyzedduringtheinvestmentplanningprocess,therekeydecisionmadefundtheinvestmentdefertheinvestmentforone(ormore)budgetcyclesscoringeachsuccesscriteriameasurefromtheperspectivewhatwillhappentheinvestmentfunded,otherwordsthevaluegeneratedtheinvestment,andwhatwillhappentheinvestmentnotfunded,rather,theriskdeferraltheinvestment,comprehensive‘whatif’scenarioanalysistheinvestmentportfoliocanoccurInvestmentOptimization,thefourthstageprocess,criticalanalyzingthetradeoffsinvestmentfundingdecisions Optimization v. Prioritization THREE COMMON PROBLEMS UMS Group Inc., All Rights ReservedUMS Group Strategic Asset Management Planning (continued)investmentsthathelpachieveouryearlygoalshavemeetreliabilitytargets,buteachyeararefallingshortHowcanensurethattheportfolioselectedinvestmentswillhelpachievethesetargets?havesomanyhighriskinvestmentsthatmanyarenotfundedgivenourbudgetaryconstraintsHowensurethatarenotmissingcriticalhighriskinvestments?Whetheryouhavetheseproblems,don’tcurrentlyhaveenoughinformationknowtheseareproblems,theinformationcollected,manipulated,andoutputtedwithinoptimizationtool,likeourSOSapplication,shouldhelpidentifyandsolvethesetypesissuesLet’sexamineeachonemoredetail The Need : betterunderstandthelevelandcomposition‘true’mandatoryinvestmentswithinthetotalproposedportf

4 olioandhowtheyimpactdecisionmaking Recom
olioandhowtheyimpactdecisionmaking Recommended Analysis : AnalyzethepercentageyourportfoliothathasbeendesignatedmandatoryThiswillprovidebetterunderstandingthe“leftoverdiscretionarypercentage,whilealsoprovidingopportunitiesreclassifymandatoryinvestments,wherenecessary,andallocatetheremainingdiscretionaryfundingachieveimprovementsandmeetcompanygoalsandobjectives PROBLEM #1: TOO MUCH MANDATORY 500,000,0001,000,000,0001,500,000,0002,000,000,0002,500,000,000 CapitalO&MCost Discretionary Mandatory ^ SOS Note: View (all web charts) in terms of cost (shown) or percentage, all years vs. individual years, and export charts to various formats. Fig. 1: Preoptimization Charting Displaying Mandatory Amounts (Currency and Percentage) by (configurable) Cost Category 200,000,000400,000,000600,000,000 Cost Discretionary MandatoryFig. 2: Preoptimization Charting Displaying Mandatory Amounts (Count, Cost and Percentage) by each (configurable) Demographic Category ^ SOS Note: Select demographic category to show on chart from drop down, and view by count or cost (shown). Fig. 3: Preoptimization Reporting Displaying Some of the Filter Options for Analyzing Mandatory Amounts and Categorizations ^ SOS Note: Filter by drop down, type in, custom combination, grouping, and more. UMS Group Inc., All Rights ReservedUMS Group Strategic Asset Management Planning CompareoptimizationscenarioswithvaryinglevelsmandatoryforcedForexample,runandcomparescenariowithallmandatoryprojectsforcedforfundingonlycertainmandatorycategoriesforcedmandatorycategoriesforced,providingviewcomparativeimpactsvalueachievedandriskmitigatedForexample,thepoliticallydrivencategorymandatoryprojectsturnedoff(notforced),whatadditionalvaluecanachieved?Whatadditionalriskcanmitigated ^ SOS Note: View the breakdown by cost type in terms of what was funded and what was deferred, showing a quick view of the portion of funded investments that were mandatory. Fig. 4: Postoptimization Breakdowns by Cost Category Fig. 5: Postoptimization Breakdowns by Mandatory Category ^ SOS Note: View breakdown by mandatory category for each year in

5 cluded in the analysis, up to 10 years (
cluded in the analysis, up to 10 years (5 year analysis shown here) Fig. 6: Single Year Results Comparison: With and Without Mandatory Forced 500,000,0001,000,000,0001,500,000,0002,000,000,0002,500,000,000 CapitalO&MCost Gap (Deferred) Discretionary (Funded) Mandatory (Funded) 500,000,0001,000,000,0001,500,000,0002,000,000,0002,500,000,0003,000,000,000 20152016201720182019202020212022202320242025Cost Discretionary Board Directed Contractual Compliance Legal/Regulatory Compliance Obligation to Serve Scenario 1: All Mandatory Forced Scenario 1: Mandatory Forced ProjectMandatory?Cost (000)Value Risk of Deferral Selected?Selected?Project 1Yes579,2681.3Project 2Yes1,073,7212.1Project 32,478,9500.6Project 4Yes2,186,7510.5Project 5428,8350.3Project 6312,6604.8Project 772,2853.5Project 8Yes1,950,0001.4Project 91,084,9141.6Project 10Yes601,2712.5Project 11Yes1,750,1515.0Project 12613,5303.1Project 131,002,2011.6Project 14547,0002.7Project 15646,7504.1Project 16229,4693.6Project 17161,9062.2Project 18183,2901.9Project 19Yes1,108,5744.6Project 20282,0001.4Total Value Achieved42.046.3Total Risk Mitigated Forverysimple,illustrativescenario(singleyear,projects,unitization),seevaluemaximizationrundelivershighervalue(aswellmoreriskmitigated)whenanalyzingtheportfolioofscoredinvestmentswithoutforcingmandatoryThiscanalsoparticularlyinterestingcomparisonwhenturningoffindividualmandatorycategories,opposedallofthem UMS Group Inc., All Rights ReservedUMS Group Strategic Asset Management Planning calculationtotalvalueachieved(ortotalriskdeferral)impacttheentireportfolio Expected Outcomes : Reducedmandatoryamountsfreebudgetachievehighervalueand/ormitigatemoreriskwithinthesamebudgetconstraints InvestmentOptimizersgainmorecontrolovertheanalysisprocessTheywillableableoverrideanyinvestments‘erroneously’designatedmandatory,demonstratemandatory/discretionarytradeoffstheboardandregulators,oftenjustifyingtheneedforadditionalfunding,andcalculatetotalcompanyvalueachieved/riskdeferralimpactstheentireportfolio,notjustthediscretionaryportion“Pork”canavoided,wherepetprojectsareattachedworkt

6 hattrulymandatoryAlthoughrelated,nonmand
hattrulymandatoryAlthoughrelated,nonmandatoryworkmaydonewiththemandatoryworktheend,whenmakessensesosaveresources,cost,etcHowever,thisallowsfortradeoffdecisionratherthanautomaticfunding The Need : achieveyearlyreliabilitygoals(maintainand/orimprovecurrentsystemreliability)viaselectiveinvestmentfunding Recommended Analysis : Capturetheexpectedimprovement(iffunded)andtheprobabilisticdegradation andpotentiallyfunded,baseditsfinancialandoperationalmerits,notvia‘forced’mechanismThisguidelineshouldenforcedthroughtrainingand/orreviewprocessesEnsurethatdiscretionaryelementsarenotbeinglumpedwiththemandatorycomponenthaveseenmanycases‘mandatoryinvestmentbloating’,whereentireinvestmenttaggedmandatory,butonlyportionthatinvestmentqualifiesmandatoryexamplethiscouldsubstationbeautificationaroundnewsubstationthatdeemedmandatorydueobligationserverequirementsThe‘beautification’pieceshouldenteredandscoredseparatediscretionaryinvestmentRequiremandatoryprojectsscored,allowingforthesetypesanalysesandtradeoffdecisionswhennecessarylargemajoritymandatoryinvestmentsstillbringvaluethecompanyfundedand/orexhibitrisksdeferraloutsideregulatorycontractualmandatesInorderseethecompletepicturevalueandriskdeferralassociatedwithportfolioinvestments,keythatmandatoryinvestmentsarescoredInourexperience,havefoundthattoomanycompaniesbypassthestepscoringmandatoryinvestmentsThislimitstheabilityfullyexaminetradeoffsbetweendiscretionaryandmandatoryinvestments,preventsinvestmentoptimizersfromoverridingfaultymandatorydesignations,andprohibitsthe Common Problem Found During Analysis : Theretoomuchmandatory,leavingverylittlediscretionarybudgetmakedecisions,evenexceedingthebudgetconstraintswiththejustthemandatoryinvestments What You Can Do : SetstricterguidelinesformandatoryprojectstighteningdefinitionslimitingthemandatorydesignationsForexample,‘ContractualObligations’leftundefinedmandatorycategory,couldbroadlyinterpretedmanyprojectplannersApplyingstrictdefinitions,suchnonmodifiableagreementhasbeenenteredwithsupplierfortheequipmentmaterialsassociatedwiththeproposedinvestmentfortheupcoming

7 budgetcycle’couldhelpreducethetaggi
budgetcycle’couldhelpreducethetagginginvestmentsmandatory,whentruththeyarenotEnsurethatanythingmarkedmandatorytrulymandatorytheselectedbudgetyear,opposedsomepointtimethefutureWhatshouldavoidedproposingandtagginginvestmentmandatoryupcomingbudgetyear,whenrealitytheprojectnotmandatoryforsomeyearscomeThishappensfrequentlywithloadtypeinvestmentsInmanycases,theincreasedcapacitynotactuallyrequiredforseveralyears,butbecausebothcapacityinvestmentand makesgoodbusinesssense,fromfinancialperspective,theinvestmentnow,theinvestmentmarkedmandatoryThistypeinvestmentshouldjustified, PROBLEM #2: RELIABILITY GOALS NOT ACHIEVED UMS Group Inc., All Rights ReservedUMS Group Strategic Asset Management Planning performancekeyqualityinputstheabilitytrackandaccessthishistoricalreliabilitydata,wellmodelfuturedeferred)foreachinvestmentThisrequiresinputquantitativeresponses,oftencalculatedbasedhistoricalFig. 7: Calculation of Value and Risk of Deferral Reliability Impactsperformancedegradationtheabsenceanyrepair/replacefunding ^ Core questions for calculating reliability scores (in this case, SAIDI), which can be further augmented with factors around worst performing circuits, regional gaps, etc. Success Criteria Scores: Calculated Value Score, compiling all scoring factors, any scaleTranslated Value Score, putting the calculated score on a common scaleConsequence Score, calculated similarly to value and translated to a common integer scaleProbability Score, based on a selection corresponding to a common integer scaleRisk Score = Consequence x Probability Actual system impacts displayed in reporting, based on scoring impacts and behindthescenes system values. Fig. 8: Actual System Reliability Improvement Impacts (if investment is funded) and Actual ProbabilityAdjusted System Reliability Degradation Impacts (if investment is deferred) UMS Group Inc., All Rights ReservedUMS Group Strategic Asset Management Planning repair/replaceinvestmentsincludedtheportfolio What You Can Do : backtheengineers/plannersandrequest SAIFI,SAIDI,etcmightdegradingsubstantiallyoverthenextseveralyears,givencurrentsys

8 temdegradationfactorsandthelackreliabili
temdegradationfactorsandthelackreliabilityfocusedRunoptimizationscenarioswithreliabilityconstraintsapplied(oftenadditionthestandardbudgetaryconstraints)recommendusingthecalculatedactualsystemimpactvalues(perinvestment)constrainscenariobasedtotalreliabilityimpactForanyreliabilitymeasurewherethisdatacollected,constraintcansetminimumtarget,wherebyminimumreliabilityimprovementneedsachievedviatheinvestmentsselectedConversely,reliabilityalreadytarget,maximumimprovementcansetconstraint,afterwhichmoremoneywillspentreliabilityimprovementsrunningtheseanalyses,quicklybecomesevidentthedesiredimprovementlevelscanachievedviatheselectedmixinvestmentsAnalyzeexpectedreliabilityperformanceovertime,takingintotheaccountthecurrentreliability,degradationfactor,andimpactsbothfundedanddeferredreliabilityinvestments Common Problem Found During Analysis : Theportfolioproposedinvestmentscannotmeettheminimumimprovementconstraint,notenoughreliabilityprojectshavebeensubmittedThismayhappenafter“lean”years,wheretherenotenoughbudgetfundreliabilityprojects,theygetbeatoutworkdesignatedmandatory,andassumptionsaremadethattheprojectswon’tfundedthey’resubmittedLikewise,analyzingtheportfolioresultsovertime,moretroublingpicturemightariseOverallSystemReliability ^ SOS Note: This picture shows an example of setting minimum reliability constraints across each year included in the scenario. Fig. : Optimization Scenario Constraint Parameters (Configurable) 100120 Current2015201620172018201920202021202220232024Portfolio Distribution SAIDIFig. 10: Portfolio View of Reliability Index, Given 10Year Scenario Outcome ^ SOS Note: The example chart shows an improvement for the first four years (green), and then degradation for the next six years (red). The current value and “do nothing” degradation value are entered/edited by the user. UMS Group Inc., All Rights ReservedUMS Group Strategic Asset Management Planning sureconsidertheriskprofilesfromoverallriskscoreperspective,generallythemaximumriskscoreacrossallobjectives,wellfromindividualobjectiveperspective‘Financial’riskmatrix)Traceba

9 ckindividualhighriskdeferredinvestmentsi
ckindividualhighriskdeferredinvestmentsinvestigatetheirriskevaluationsand/orforcethemautomaticallyselectedthenextoptimizationscenarioIn The Need : seeyourprofileriskexposureandmakesuremaintainedacceptablelevel Recommended Analysis : Analyzetheoverallportfolioriskdistributionscatterplotunderstandtheimpactfundedanddeferredinvestments (continued)morereliabilityprojectsubmissionsthepotentialprojectsare“outthere”andthistyperequesttypicallyhappilyobligedCommunicatetheinvestmentplannersengineersthatreliabilityperformanceis,fact,priorityandthatreliabilityimprovementinvestments,evensmallones,willlongerpushedthewaysideReconsidertherelativeprioritythe‘Reliability’‘Operational’strategicobjectiveItmaythatadditionalemphasisneedsplacedthereliabilityobjectivecloseperformancegapstemporarilyshiftingweightingpriorityfromotherobjectivesthisobjective,optimizationresultswillprovidemorereliabilityfocusedoutcomes Expected Outcomes : ReliabilitytargetsshouldmoreattainableWithbothgreaterpriorityplacedtheoperational/reliabilityobjectiveandplannersfocusingtheireffortscreatingandenteringprojectsspecificallygearedtowardsystemreliabilityimprovements,thereshouldlongerabsencereliabilityfocusedinvestments thereliabilityinformationnowavailablethehumanexpertsmakefinalinvestmentsdecisionsandclearlycommunicatethetradeoffsDespitetheimportancesystemreliabilitytheutilityworld,mustcautionshiftingallfocusreliabilityinfinitumsureperformancegapsareevaluatedeach yearandalterandcommunicateprioritiesaccordingly,basedthatgapanalysis PROBLEM #3: HIGH RISK INVESTMENTS NOT FUNDED ^ SOS Note: Small sample dataset showing funded (filled dots), deferred (hollow dots) and partially funded (triangles) projects, according to each project’s overall risk of deferral (consequence and probability). Fig. 11: Optimization Results Distributed on the Risk of Deferral Matrix Fig. 12: Easy tracing and manipulation of deferred investments in the IO (Investment Optimizer) Module ^ SOS Note: Clicking on a deferred project on the chart shows a list of all deferrals, allowing easy clickthrough back to the

10 Project Library for analysis / modificat
Project Library for analysis / modification. UMS Group Inc., All Rights ReservedUMS Group Strategic Asset Management Planning providethefullpictureIfriskhistogramsforbothinvestmentcountandinvestmentcostskewtowardhighriskdeferral,thiscouldindicateagingassetinfrastructurewiththecompanyagainstassetreplacementwallIfthislogiccheckdoesnotringtruthenscoringmayneedadjustedand/orriskdefinitionstightenedwhattrulyequatescatastrophic(continued)somecases,investmentsmaybehavebeenerroneouslycategorized‘high’riskandmayrequireadjustmentAnalyzeriskdistributionhistogramsbasedinvestmentcostandcountHighercostinvestmentsareoftencorrelatedwithhigherriskdeferralduethesizeandnaturetheinvestment,socostalonemaynotFig. 13: Investment Cost and Count Risk Histogramsriskevent),toomanyprojectsmayreceivinghigherriskscorethanwarranted AnalyzetheriskprofilefrommultiyearperspectiveIthelpfulunderstandthedirectionthatrisktrendingfutureyears . Arehighriskprojectscontinuallybeingdeferred?Isthetotalamount ^ SOS Note: Each color represents a different risk level, with blue at the low risk of deferral end and red at the high risk ofeferral end. The color portions indicate optimized (or funded) investments, whereas the clear or dotted portions indicate deferred or partially funded investments. Fig. 14: MultiYear Risk Analysis: MultiYear Deferred Investment Count by Risk Level and MultiYear Risk Mitigated (from a summed exponential risk score perspective) ^ SOS Note: The first chart indicates the amount and level of portfolio risk for deferred investments only over a 5year optimization timeframe. The second chart indicates the total combined amount of risk mitigated (blue) and risk deferred (clear) over a 5year period. This chart sums the exponential risk of deferral factors associated with each investment to determine the total summed risk profile. UMS Group Inc., All Rights ReservedUMS Group Strategic Asset Management Planning mitigatedviamuchlowercostinsuranceoptions(whereinsurancecompaniesareablespreadtheriskacrossmuchlargerpoolcompanies/individuals)Insomecases,investmentplannersmaypresentnewoptionth

11 atonlytemporarilymitigatestheriskAlthoug
atonlytemporarilymitigatestheriskAlthoughcompaniesoftenshyawayfromthisapproach,may‘necessaryevil’duringheavilyconstrainedbudgetyear,andwillleastprotectthecompany,employees,andpublicfromanyimmediateharmIfyouhavedeterminedthattheinvestmentriskscoringevaluationsareaccurateandinvestmentalternativeshavebeenexhausted,performtherecommendedanalysesandmakeyourcaseforacquiringadditionalfundingcoverthehighriskinvestmentsand/orfor(temporarily)deferringhighvalueprojects,thatmayhavebeenselectedfirstotherbudgetyears Expected Outcomes : investmentfundingplanachievedwithallunacceptablerisksaddressedIndoingso,changesinvestmentriskdeferralscoring,creationalternativeinvestmentoptions,and/oridentificationadditionalfundingmaynecessaryachievetheacceptablerisklevelThegraphicaloutputscreatedduringinvestmentoptimizationcanusedeasilyandclearlycommunicatethefinalportfolioriskprofileresultscompanystakeholders thevalueoptimizationscenarioInthiscase,oftenbeneficialrunvalueoptimizationscenariowithallhighriskinvestments‘forced’throughtheanalysismandatoryThisensuresthatthecompanynotknowinglyexposedpotentiallycatastrophicsituationsIncreaseinstitutescoringtrainingsessions,withparticularfocusriskdeferralscoringIngeneral,thescoringshoulddesignedensurethatnothingcatastrophicwithhighprobabilityoccurrencehappensthenextbudgetcycle(oruntiltheinvestmentcanproposedandevaluatedagain)OftentoowideviewtakenduringanalysiswherethescoringalignswithseverityandlikelihoodoccurrencesomepointthedistantfutureTrainingcanhelpbuildconsistencyscoringandwillmostlikelyreducethenumberinvestmentsidentifiedhighriskSimilartherecommendedanalysismandatoryinvestmentspend,youmightwantinvestigateseeanythehighriskinvestmentshavebeen‘padded’withadditionalnonhighriskworkstrippingoutthesenonhighrisktasksandevaluatingthemseparateinvestments,youmightwellhaveenoughfundscoveralltheremaining,validhighriskinvestmentsInvestigatewaysmitigatehighriskinvestmentsvialowercostsolutionsStartaskinginvestmentplannerspresentalternative,lowercostinvestmentoptionForexample,highfinancialrisksmightable riskmitigated(fromsummedexponentialriski

12 mpactview)improvingdegradingovertime?The
mpactview)improvingdegradingovertime?Theseanalyseswillhelpshedlightthetotalportfoliodeferralriskhorizonandhelpyoudetermineadditionalemphasisneedsplacedinvestmentriskdeferralmitigation,opposedjustvaluecreation Common Problem Found During Analysis : Thereweretoomanyhighriskinvestmentsdeferredandtheremaininglevelriskexposurenotacceptable What You Can Do : ReviewhighriskprojectsensurescoringconsistentandaccuratelyreflectingriskdeferralInsomecasesthismightrequirediscussingtheriskscoringparticularinvestmentwiththeprojectplannerandpotentiallyhavingthemrescorethoseevaluationsectionsothertimes,thismaysimpleperformingminortweakstheriskscoringweightings,scoringalgorithms,and/orscoretranslation/distributionscalescreatemorenormaldistributionriskscoresacrosstheinvestmentsEvaluatethetradeoffsoptimizationresultsbasedbothvaluescenario(overallvaluescoreoptimized)and riskdeferralscenario(overallriskdeferralscoreoptimized)Inmostcases,theanswerfallssomewherethemiddlethesetwoextremes,anddiscussionscanbetterfocusedthetrulydifficultdecisions,suchhighriskinvestmentbeingfundedtheriskoptimizationscenario,butnot UMS Group Inc., All Rights ReservedUMS Group Strategic Asset Management Planning Ifyouhaven’trunintotheseissuestoomuchmandatory,notbeingableachievereliabilitygoals,havingtoomuchriskexposureaftersettingthebudget,lookingintotheseareasandanalyzingsupportingdatacouldveryvaluableIfyoustrugglewithacquiring/accessingthisdatanothavethenecessarydecisionsupporttoolsplacesupportthistypeanalysis,portfolioevaluationandoptimizationtoolmightworthwhileinvestmentSuchtoolcouldhelpcollectthisinformationcommonplatformandprovidetherelatedanalyticsreallyunderstand,wellcommunicate,whatproposedinvestmentsprovideportfoliolevelandanycorrespondingtradeoffsUltimatelysolvingthesetypesproblemspropelsyoutowardachievingyourcompanystrategy,makinginformeddecisionsefficiently,andcommunicatingthesupportingreasoningandimpactsthosedecisionseffectivelyacrossyourorganization CONCLUSION For mo re information on our viewpoints, case studies, etc. regarding investment portfolio optimization please contact us at: info@umsgroup.c