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Portfolio Analysis

2901 words - 12 pages




Once an association has adopted a strategic plan, the next step is to convert the goals and objectives in that plan to a work plan and budget. But how can this be done? Every association program or service has a constituency and a claim on resources. How then to weigh the allocation of scarce resources to ensure that the objectives of the plan are attained and member needs are served? Portfolio analysis has been devised to help associations bridge the gap between strategy formulation and strategy implementation. In other words, it helps you make the hard choices of where to put your money. It ...view middle of the document...

Those that appeal to a more limited segment can be funded by those desiring the product or service rather than by dues.

Advantages and Disadvantages of Portfolio Analysis

Portfolio analysis offers the following advantages:

1. It encourages management to evaluate each of the organization's businesses individually and to set objectives and allocate resources for each.

2. It stimulates the use of externally oriented data to supplement management's intuitive judgment.

3. It raises the issue of cash flow availability for use in expansion and growth.

Portfolio analysis does, however, have some limitations.

1. It is not easy to define product/market segments.

2. It provides an illusion of scientific rigor when some subjective judgments are involved.

Considering both its advantages and disadvantages, portfolio analysis should be regarded as a disciplined and organized way of thinking about asset allocation. It is only a subjective tool, however, and is not a substitute for the ultimate professional judgment of the responsible decision-makers.

Step 1: Identify Lines of Business

The first step in portfolio analysis is to identify the lines of businesses (SBUs) that make up the association's portfolio. The guideline to keep in mind is this: if we were a corporation instead of a professional society, which groups of programs would be logical candidates to be grouped together as independent businesses?

Step 2: Group Lines of Business

There are three lines of businesses an association typically engages in. The first is core businesses that are of vital importance to your broad membership. These are the businesses that directly support the objectives in the strategic plan and have a priority claim on resources.

The second line of business is support functions that make it possible to deliver the core business benefits to members. Examples of support functions are administrative, accounting, legal, governance support, etc. These do not have a priority claim on resources. Rather, the objective is to minimize the cost of these functions and transfer resources to support the core business.

The third line of business is money-makers that provide low-priority member benefits but are the source of revenues that support the association’s core businesses. Ideally, the association’s core businesses should be self-supporting and perhaps even contribute to reserves. Often, this is not the case and activities must be subsidized with other income. Money-makers provide this income. Examples of money-makers are rental car discounts, affinity cards, insurance programs.

Step 3: Compare Core Businesses with Mission Statement

Once you have separated out your core businesses, compare them with the association's mission statement. To pass this screen, a business must directly support the goals that are defined in the mission statement. Support should be direct and not peripheral. If a line of business does...

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