552  Strategic Management: Analytics
portfolio will be lower than for the individual projects. Of course, the risk reduc-
tion will be less for a portfolio of projects with returns that are positively corre-
lated. Depending on the situation, the corporate staff could therefore exchange 
parts of the portfolio with less correlated projects from the next-best-ranked 
projects, to reduce aggregate portfolio risk, even though the reduction in risk 
will come at the expense of overall return.
The approach aims to create the best allocation from a corporate per-
spective, maximizing value creation with an acceptable risk profile for the 
company as whole. But it may well allocate investments unevenly from the 
viewpoint of the business units—for example, when one unit has very few 
proposals approved relative to others. If uneven allocations are the rule rather 
than the exception, that can be an important insight. Businesses that are un-
able to compete successfully for investment resources could be candidates for 
divestment to a better owner or should focus their strategy on cash generation 
rather than growth through investments.
Allocating resources through project ranking and prioritizing should be 
done annually at the very least, preferably more frequently, depending on the 
length of projects. Of course, doing this at the corporate rather than business 
level might hamper an organization’s ability to react quickly to new oppor-
tunities or information. Each organization will have to find the right balance 
between flexibility and efficiency in resource allocation. For example, some 
companies set up investment reserves for unforeseen initiatives. Others assign 
investment funds to projects on a conditional basis, so that allocations can be 
changed during the year if projects don’t meet predetermined milestones. One 
Exhibit 29.2  Ranking of Investment Projects at Aggregate Portfolio Level
Return, present value/investment
Investment required, $ million
1.8
Unit A
Corporate
budget
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0
0
50
100
150
200
250
300
350
400
450
Unit B
Unit C

Taking the Enterprise View  553
company we know devotes several weeks per year to discussion of resource 
allocation. Most of the company’s investment decisions are made during these 
weeks, always in the context of the overall portfolio of projects. If certain in-
vestment decisions must be made outside this allocation cycle, their impact on 
the company’s overall portfolio is analyzed separately.
When a company is faced with too many projects to assess individually, 
the approach can be easily modified. Instead of submitting all investment 
projects separately, the business units could propose tranches of logically 
grouped projects. For example, the units could submit a tranche of $50 mil-
lion investments just to “keep the lights on,” a second tranche of $100 million 
projects to maintain market share and growth with their market, and a third 
tranche that might provide $100 million for some new products or services or 
enhancements to customer service. The investment proposal for each tranche 
would include an estimated value and risk profile. Then the corporate staff 
would rank and prioritize the tranches (rather than the individual projects) 
across all business units, following the same logic as described earlier. Some 
units would receive all three tranches, others only one or two, as shown in 
Exhibit 29.3.
Sometimes business units need to consider projects that address critical 
threats or opportunities but also have significant investment needs and/or 
risks, even from a corporate perspective. In a hybrid approach, such projects 
could be classified as strategic if they exceed certain limits for investment and 
risk; the limits could be predetermined by, for example, the company’s CEO 
Exhibit 29.3  Ranking by Tranches of Investment Opportunities
Return, present value/investment
Investment required, $ million
Unit
I
II
I
II
I
II
III
III
III
1.8
Keep the lights on
 
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0
0
50
100
150
200
250
300
Sustain and grow market share
New products and services 
Corporate
budget