Portfolio Optimisation
Portfolio Optimisation translates the insights from risk assessment and optioneering into a coordinated and deliverable portfolio of interventions.
It takes the shortlisted interventions from previous stages and determines three things: the appropriate bundle, each intervention's implementation mode or scale, and the schedule arrangements. Those decisions account for operational and programme constraints: available resources, intervention interdependencies, relevant risks, and performance requirements.
The link between two different kinds of planning
This process is the bridge between individual intervention appraisal and programme-level planning and delivery.
Everything before it judges options one at a time. This stage is the first that asks what happens when they are delivered together, competing for the same money, teams and access windows.
The principal question
Which combination of interventions should be implemented, at what implementation mode or scale, and when, given the identified risk reduction needs, available budget and resources, intervention interdependencies, and programme requirements?
Answering it determines:
- Which shortlisted interventions can be included in the optimal portfolio?
- At what implementation mode or scale should each be delivered?
- When should they be implemented, and in what sequence?
- Which interventions, at their particular modes and scales, complement, conflict with, or influence one another?
- Can the portfolio be delivered within the available budget, physical resource limitations, implementation windows and other programme constraints?
- Does the portfolio collectively meet the required levels of risk reduction, mitigation and performance?
- What trade-offs exist between alternative feasible portfolio bundles?
- How do portfolio decisions influence future risks, and what does that imply for implementing, postponing, or leaving interventions unselected?
The last question is about what you did not choose
Deferring an intervention is a decision with consequences, not a non-decision. Asking what postponement and non-selection imply for future risk is what keeps the unchosen options visible rather than quietly dropped.
The baseline model
The current model is indicative, not final
A current baseline model has been developed and will be refined as more information becomes available on intervention interactions, risks, specific objectives and programme constraints.
It minimises portfolio value across two competing objectives: portfolio cost and programme makespan, the total time to complete the programme.
The handbook is explicit that these are simply indicative objectives and do not reflect the final requirements for the general process. The objectives and constraints will be refined as the upstream modules are refined.
Treat cost and makespan as a worked demonstration of the method, not as the DSP's settled objective function.
Systematic steps
1. Receive and interpret upstream outputs
Receive the shortlisted and assessed intervention options, together with their risk references, risk reduction needs, intervention characteristics, costs, benefits, impacts, implementation information, constraints, interdependencies, uncertainties and MCA results.
Retain the link between each intervention and its underlying risk reduction need, so that portfolio decisions remain traceable back through the upstream modules.
2. Define the candidate intervention set
Establish which interventions, packages or pathways are eligible for consideration.
Options screened out as technically infeasible in preceding processes do not enter the optimisation, which keeps the problem both feasible and tractable.
3. Define intervention characteristics and implementation alternatives
For each candidate: implementation cost, preparation time, duration, implementation modes and scales, resource requirements, and contribution towards the relevant mitigation or performance requirements.
4. Define the planning context and portfolio requirements
Establish the planning horizon, available budget, physical resource capacities, required mitigation or performance levels, implementation windows and other programme-level requirements.
These are the conditions within which any feasible portfolio must be formed.
5. Identify portfolio-level interdependencies and interactions
Identify relationships between interventions, and where relevant the mode and scale relationships within a single intervention. These may appear as:
| Relationship | What it means for the portfolio |
|---|---|
| Dependencies or prerequisites | One intervention cannot start until another finishes |
| Sequencing requirements | An order is imposed |
| Mutually exclusive options | Choosing one rules out another |
| Synergies | Delivering together costs less or achieves more than separately |
| Incompatibilities | They cannot coexist |
| Shared-resource effects | They compete for the same teams, plant or access |
6. Define the portfolio objectives
Define the outcomes expected from the portfolio, expressed as optimisation objectives. These may relate to cost, implementation time, risk, performance or other anticipated programme consequences.
Competing objectives must stay visible
Where objectives compete, the handbook says it is critical to make the resulting trade-offs visible to decision-makers.
Collapsing competing objectives into a single weighted score hides exactly the judgement that decision-makers are there to make.
7. Formulate and solve the optimisation problem
In the baseline model the principal decisions are intervention selection, implementation mode or scale, and implementation timing, with resource allocation determined by the resulting schedule.
8. Compare alternative feasible portfolios
Where multiple objectives compete, there should be a route to identify alternative efficient or non-dominated portfolios.
The baseline model demonstrates this through the cost and makespan objectives, using a Pareto frontier to assess the trade-offs.
What a Pareto frontier gives you
It is the set of portfolios where no objective can be improved without making another worse. Rather than one answer, it hands decision-makers the genuine menu: the cheapest portfolio, the fastest, and every efficient compromise between them.
9. Review and validate the portfolio
Review the resulting intervention combinations, implementation modes and scales, schedules, resource requirements and portfolio outcomes with relevant stakeholders.
Mathematically feasible is not the same as deliverable
This step exists to ensure that portfolios which are mathematically feasible are also technically, operationally and practically credible.
An optimiser will happily produce a schedule that no delivery team could execute.
10. Prepare the portfolio for programme development and delivery
Package the portfolio bundles, including implementation schedule, resource allocation requirements, costs, and the relevant risk and performance satisfaction standards.
The package is then used for detailed scheme development, funding, procurement and implementation.
Engagement required
The module should build on information already collected through Risk Assessment, Risk Reduction Analysis and the optioneering and MCA processes.
Start by finding the gaps
The first step is to review what is available and identify data gaps. Stakeholder engagement and additional data collection are then targeted at filling those gaps and validating the information critical to the portfolio, rather than collecting everything again.
Review of existing information and desk studies
The review establishes what information exists, whether it is suitable for portfolio optimisation, and what is missing or needs validation. It covers:
- Candidate interventions and their links to identified risks and risk reduction needs
- Optioneering and MCA results, and the associated option assessments
- Intervention costs, benefits, impacts and uncertainties
- Available implementation modes or scales
- Expected mitigation or performance contribution
- Preparation requirements, implementation durations and delivery windows
- Identified technical, operational, environmental and other constraints
- Previously identified dependencies and interdependencies
- Existing programme, asset management, resource, procurement and delivery information
Interviews and workshops
Used to validate existing information and address portfolio-level gaps, which may include:
| Gap | |
|---|---|
| Budget and horizon | Available budget, planning horizon, programme requirements |
| Implementation options | Feasible modes and scales, and their conditions |
| Timing | Preparation time, implementation duration, feasible delivery windows, where uncertain |
| Resources | Requirements, availability, delivery capacity |
| Ordering | Dependencies, sequencing requirements, mutually exclusive alternatives |
| Interactions | Interdependencies between interventions, or within their modes and scales |
| Interfaces | Synergies, incompatibilities, and interfaces with existing or planned works |
| Delivery constraints | Operational, access, procurement and other constraints |
| Risk | Portfolio-level risk and uncertainty considerations |
| Priorities | Programme priorities and trade-offs relevant to comparing portfolios |
Additional data collection
Undertaken only where required to complete or improve the optimisation inputs:
- Missing or updated intervention-specific and mode or scale-specific costs
- Preparation times, implementation durations and feasible start periods
- Physical resource requirements and resource capacities over time
- Quantitative information needed to represent dependencies or other interactions
- Missing budget and programme constraints
- Intervention contributions towards mitigation or performance requirements
- Additional risk, uncertainty or future-scenario information
Iterative steps
Initial portfolio results can expose feasibility issues, trade-offs, or the need to refine earlier inputs. Each iteration updates the relevant inputs or the formulation, and re-runs the optimisation.
| Iteration | What triggers it |
|---|---|
| Feasibility | The defined budget, resources, timing, mitigation requirements or other constraints produce no feasible portfolio. The requirements, assumptions or input data are revisited. |
| Interdependency | Additional dependencies, sequencing requirements, mutual exclusivities, synergies or mode and scale relationships appear. These must already be incorporated into the formulation to trigger re-evaluation. |
| Risk and scenario | Updated risk information, future scenarios or residual-risk considerations change the expected effects of interventions, and therefore the portfolio inputs and parameter values. |
| Objective and constraint | Results or stakeholder input indicate the defined objectives or constraints do not adequately represent the programme decision. |
| Portfolio trade-off | Competing objectives produce different feasible portfolios and the trade-off approach cannot converge on one bundle. |
The trade-off method in the baseline
The current baseline uses an epsilon-constraint procedure together with a Pareto frontier, to handle the trade-off between portfolio cost and programme makespan.
The final approach will depend on the objectives adopted in the final model.
Output schema for the next process
The principal output is a set of selected interventions with the information needed for subsequent programme development and delivery. Outputs should retain links back to Risk Reduction Analysis and to the optioneering and MCA results, to maintain traceability through the Risk Mitigation process.
| Output element | Description |
|---|---|
| Portfolio ID | Unique identifier for the selected or alternative portfolio |
| Selected interventions | Interventions included, linked to their preceding option and risk references |
| Selected mode or scale | Implementation mode or scale chosen for each intervention, where applicable |
| Implementation schedule | Planned start, completion, duration and sequence |
| Resource allocation | Resources required across the implementation programme |
| Portfolio cost | Total cost and associated budget utilisation |
| Portfolio outcomes | Achievement against the relevant mitigation, performance, risk or other requirements |
| Interdependencies | Dependencies, incompatibilities, synergies and other relationships relevant to implementation |
| Alternative portfolios and trade-offs | Alternative efficient solutions and their principal trade-offs, where applicable |
| Key assumptions and uncertainty | Material assumptions, constraints and uncertainties relevant to interpretation or implementation |
| Portfolio recommendation | The selected portfolio, or alternatives retained for further decision, with the basis for progression |
Overall output
- Selected intervention portfolio
- Implementation schedule
- Resource allocation plan
These provide the portfolio-level information needed downstream for detailed scheme development, funding and budgeting plans, and plans for procurement, programme management and implementation.
This is where the Treasury cases are served
Those three downstream destinations correspond to the three outputs shown leaving this stage on the master diagram: the Financial Case, the Commercial Case and the Management Case.