Question 3 a. Three junior portfolio managers Andrew, Betty, and Cornell are arguing on the scenario when they should stop monitoring the portfolio performance. Andrew states that it is when the portfolio is totally aligned with the strategic objectives and goals. Betty claims that it is when the portfolio reached its stated objectives. Cornell disagrees with the two ideas and argues that monitoring portfolio performance is an ongoing activity. Whose opinion is correct? Explain your answer. (4 marks) b. AIA, an insurance company, has just appointed Mark to be a new portfolio manager. Mark starts to review the current existing portfolio and assure the alignment ofthe portfolio components to the AIA strategic objectives and goals. Note that the ROI (return on investment) is calculated as RCJII= Net Profit/Total Investment all the calculation disregards the time value of the money factor. Assume the fol lowing: I Strategic Alignment weight (Wx) = 3 I ROI weight (Wy) = 4 I Risk weight (Wz) = 2 i. Given the following scoring table, calculate the total score of priority of each component. (6 marks) ii. What is the priority order of the portfolio components? (2 marks) Criteria Strategic Alignment ROI Risk Value (X) Value (Y) Value (Z) Component 1 3 50% 2 Component 2 2 90% 1 Component 3 2 25% 3 Component 4 1 45% 4 Solution - Ranking Formula and Prioritisation I First, the values of each criterion given in the table above are normalised. I X 84 Y criteria have a positive impact (beneficial) whereas 2 has the negative impact (non- beneficial), so we will divide X 8L Y values of each component by the largest value of X & Y whereas smallest value of Z is divided by values of each component. I We then multiply them with their respective weights and add all of them. I Hence formula for ranking the components is as follows: Ri = Wx * (Xi / Xmax) + Wy * (Yi lYmax) + W: * (2min / Zi) R1=3*(3/3)+4*(50/90)+2*(1/2)=3+2.2+1 =5.2 R2=3*(2/3)+4*(90/90)+2*(1/1)=2+4+2 =8.0 R3 = 3 * (2/3) +4 * (25/90) + 2 * (1/3) = 2 + 1.1 + 0.67 = 3.78 R4=3*(1/3)+4*(45/90)+2*(1/4)=1+2+o.5 =3.5 Component with the largest value (Ri) will get top priority and smallest one the lowest priority. Hence the priority order is Component 2 > Component 1 > Component 3 > Component 4 c. Among the three statements below, which one best describes the concept of soft booking: i. Soft booking referring to the booking of resources from outside the organization ii. It is the organization's commitment to resources to the new authorized portfolio component, based on the expected end date of an active component iii. It is referring to the booking of resources in program/project plans based on the supply and demand process of the portfolio. (2 marks) d. Explain the influence of risk appetite and the forecast benefits of portfolio components on the decision to allocate resources in a portfolio. [6 marks)