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Portfolio simulation: A tool to support strategic management
Author(s) -
Merten Peter P.,
Löffler Reiner,
Wiedmann KlausPeter
Publication year - 1987
Publication title -
system dynamics review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.491
H-Index - 57
eISSN - 1099-1727
pISSN - 0883-7066
DOI - 10.1002/sdr.4260030202
Subject(s) - portfolio , competitor analysis , computer science , investment (military) , operations research , investment strategy , normative , application portfolio management , project portfolio management , management science , microeconomics , economics , finance , engineering , management , profit (economics) , project management , philosophy , epistemology , politics , political science , law
We show that a quantitative portfolio simulation model can be used effectively in the allocation of investment funds in multibusiness firms. The portfolio simulation model, which is formulated with an extended system dynamics approach, further allows us to show severe limitations of qualitative portfolio approaches, such as that of the Boston Consulting Group (BCG). The simulation experiments demonstrate that it can be extremely dangerous for diversified companies to follow the investment suggestions typically drawn from the BCG portfolio matrix if competitors choose a course of action that is contradictory to normative situations. The simulation runs additionally show that in an economic depression a more flexible positioning strategy can yield much better results than the fixed positioning strategy typically used by the BCG.