Title: "Simple Probabilistic Evaluation of Portfolio Strategies"
Authors: William B. Poland  Strategic Decisions Group
Date: October 4, 1997
Status: working paper

An important part of portfolio strategy evaluation is determining the probability distributions of key value measures, such as the net present value of free cash flow. This task can be computationally daunting when the portfolio consists of many businesses or assets, so we have developed a shortcut method that quickly captures the location, spread, and tilt (mean, variance, and skewness) of the portfolio distribution. We have also developed techniques to help less technical senior management understand portfolio uncertainty. These techniques allowed us to interactively explore portfolio strategies with the executive team of a packaging and plastics company comprising 20 businesses, and to identify strategies with the potential to more than double NPV with reduced risk. We have since applied these techniques successfully in the pharmaceutical, oil and gas, telecommunications, chemical, and entertainment industries.

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