PRESENTATION ON:

PORTFOLIO PLANNING TOOLS

PRESENTED BY- Nishi Agrawal Shreya Saxena Sagar Syal Shivli Gupta Rupali Ritika chabra

What is portfolio planning?

Portfolio planning is a structured and intelligent way of spreading your risk through different investment options and to enjoy the diversification benefits marked with a higher rate of interests. There is no fixed rule on how to plan your portfolio but there are several platforms available on which you can explore the art of perfect portfolio building. It is equally important to check the portfolio performance in every quarter.. To be successful in the portfolio planning, you need to be aware of historical precedents, the average return on savings, the rate of return on investments and normal yields.

Portfolio planning tools

Meaning:

PPT is a stochastic modeling tool that has been designed to help the advisors choose suitable strategic asset allocations for their clients by allowing them to compare the relative risk and return characteristics of different strategic asset allocations.

BOSTON CONSULTING GROUP (BCG) MATRIX

BOSTON CONSULTING GROUP (BCG) MATRIX is developed by BRUCE HENDERSON of the BOSTON CONSULTING GROUP IN THE EARLY 1970’s.

BCG is one of the most FAMOUS AND SIMPLE portfolio planning matrix ,used by large companies having multi-products.

According to this technique, businesses or products are classified as low or high performers depending upon their market growth rate and relative market share.

Relative Market Share and Market Growth

To understand the Boston Matrix you need to understand how market share and market growth interrelate.

MARKET SHARE

• Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms.

• RELATIVE MARKET SHARE

• RMS = Business unit sales this year Leading rival sales this year

• The higher your market share, the higher proportion of the market you control.

MARKET GROWTH RATE

Market growth is used as a measure of a market’s attractiveness.

MGR = Individual sales - individual sales this year last year Individual sales last year Markets experiencing high growth are ones

where the total market share available is expanding, and there’s plenty of opportunity for everyone to make money.

THE BCG GROWTH-SHARE MATRIXIt is a portfolio planning model which is

based on the observation that a company’s business units can be classified in to four categories:

Stars Question marks Cash cows Dogs

It is based on the combination of market growth and market share relative to the next best competitor.

STARS(High growth, High market share)Stars are leaders in business.They also require heavy

investment, to maintain its large market share.

It leads to large amount of cash consumption and cash generation.

Attempts should be made to hold the market share otherwise the star will become a CASH COW.

CASH COWS(Low growth , High market share)

They are foundation of the company and often the stars of yesterday.

They generate more cash than required.

They extract the profits by investing as little cash as possible

They are located in an industry that is mature, not growing or declining.

Dogs(Low growth, Low market share)

Dogs are the cash traps.Dogs do not have potential to bring

in much cash.Number of dogs in the company

should be minimized.Business is situated at a declining

stage.

QUESTION MARKS(High growth , Low market share)

Most businesses start of as question marks.They will absorb great amounts of cash if the

market share remains unchanged, (low).Why question marks?Question marks have potential to become

star and eventually cash cow but can also become a dog.

Investments should be high for question marks.

WHY BCG MATRIX ?

To assess : Profiles of products/businesses The cash demands of products The development cycles of products

Resource allocation and divestment decisions

BENEFITS

BCG MATRIX is simple and easy to understand.

It helps you to quickly and simply screen the opportunities open to you, and helps you think about how you can make the most of them.

It is used to identify how corporate cash resources can best be used to maximize a company’s future growth and profitability.

LIMITATIONS

BCG MATRIX uses only two dimensions, Relative market share and market growth rate.

Problems of getting data on market share and market growth.

High market share does not mean profits all the time.

Business with low market share can be profitable too.

STRATEGIC PLANNING

Today, the most important concern of most of the organizations is for guaranteed in complex environmental changes. Strategic planning provides some tools for the organizations to follow the formulation of the strategy in various aspects of the organization and manage their strategic performance

SPACE Analysis – Strategic Position and Action Evaluation Matrix

It is a super technique for evaluating the sense and wisdom in a particular strategic plan. It was developed by strategy academics Alan Rowe, Richard Mason, Karl Dickel , Richard Mann and Robert Mockler. The Strategic Position Evaluation (SPACE) analysis framework is a very useful but not well known tool to develop and review a company’s strategy.

It can be used at :the beginning of the exercise to predict the overall

key themes As a check at the end of the process. It can also be used to evaluate individual strategic

options generated by using a tool like the Growth Matrix

SPACE ANALYSISSPACE Analysis is a systematic appraisal of four

key issues that balance the external and internal factors that should determine the general theme of the strategy:

External : Industry AttractivenessEnvironmental StabilityInternal :Competitive AdvantageFinancial StrengthBy combining ratings on each dimension on one

SPACE matrix diagram, the framework guides the strategic agenda.

SPACE Analysis Factors For Competitive Advantage1. Market Share2. Quality3. Customer Loyalty4. Cost Levels5. Product RangeAdvantage In The SPACE Matrix: · Market share (small to large) · Product quality (inferior to superior) · Product life cycle (late to early) · Product replacement cycle (variable to fixed) · Customer loyalty (low to high) · Competition’s capacity utilisation (low to high) · Technological know-how (low to high) · Vertical integration (low to high) · Speed of new product introductions (slow to fast)

SPACE Analysis Factors For Industry Attractiveness1. Growth Potential2. Life Cycle Stage3. Entry Barriers4. Customer Power5. SubstitutesIndustry attractiveness is scored 6 great and 1 poor in the SPACE

analysis matrix : Growth potential (low to high) Profit potential (low to high) Financial stability (low to high) Technological know-how (simple to comple ·Resource utilisation (inefficient to efficient) Capital intensity (low to high) ·Ease of entry into the market (easy to difficult) ·Productivity; capacity utilisation (low to high) bargaining power (low to high)

SPACE Analysis Factors For Environmental Stability1. Political Uncertainty2. Interest Rates3. Technology4. Cyclical5. Environmental IssuesStability In The SPACE Matrix: · Technological changes (High to Low)· Rate of inflation(High to Low)· Demand variability (much to little)· Barriers to entry into market (much to little)· Competitive pressure/rivalry· Price range of competing products (narrow to

wide)

Interpreting the SPACE Analysis Matrix Diagram

The Strategic Position and Action Evaluation Matrix is a useful guide which helps you to decide which strategy is most appropriate in which situation.

The SPACE Matrix assesses the business across four dimensions

· Industry Attractiveness· Environmental Stability· Competitive Advantage· Financial StrengthTo come to a recommended strategic thrust which can be:· Aggressive Strategy· Competitive Strategy· Conservative Strategy· Defensive Strategy

THANK YOU !