Portfolios as Off-equilibrium Processes: Similarities and Affinities – Towards Rational Prioritizing and Selecting Portfolio Components

A portfolio is a collection of projects or programs (components) grouped together by an organization, at any given time, in order to meet its strategic business objectives and, in that context, they reflect and affect the strategic goals of the organization. A portfolio can be considered as an organizational process that needs externally provided input (energy, resources, steering) to keep a certain operational state within a particular system (business environment) in order to deliver the desired output, i.e. the successful implementation of the strategic objectives of the host organization. In general, a portfolio may have a variety of internal configurations (of component sets) compatible with the external constraints (input & output), albeit there are only a few of these configurations providing its most effective implementation. Similarly, in nature, there exist many off-equilibrium processes comprising canonical ensembles of physically admissible internal configurations. The efficiency of such processes becomes maximal along a locus of “optimum operating conditions”, whereby the total entropy produced (the sum of thermal and configurational entropies) is maximized, in conformance to pertinent thermodynamic principles.This paper delineates similarities and affinities between project portfolios and the particular type of physical processes and frames a normative methodology for prioritizing and selecting portfolio components with the scope to address a key problem in portfolio management, the selection and balancing of portfolio components.