When I’m Old and Grey(er)

I’m getting on a little.  After 25 years of work I want to make sure that I don’t have to do another 25.

Tragically, I am starting to worry about my pension.

I want to spend my golden years watching the sun set over the ocean, not sitting in an office.

So I have talked to a financial advisor

He has been busy developing a savings portfolio for me (and taking his cut of my hard-earned retirement fund, not that I am remotely bitter).

My advisor has pointed out the blindingly obvious.  I need to balance the risk of my investments:

  • I need to put some money into safe stuff (gold)
  • I need to put some money into mid range stuff (the stock exchange)
  • I need to put some money into that can’t fail investment in Ulaanbaatar that will make me millions

My advisor tells me that if I have a portfolio I can change the risk to reward balance of my investments by changing my portfolio mix.

So a portfolio approach is best, it helps me manage the risk.

What has this got to do with business improvement?

All improvement projects carry risk.  Non of them are guaranteed to work.

We are sophisticated managers, so we manage that risk by sitting in star chambers and applying hurdle rates and writing investment appraisals for each individual project.

But rather than managing all projects to the same risk appetite what we should do is…

Take a portfolio approach

And manage our projects as a group

  • A bucket full of small improvements
  • Some business process redesign
  • A few sizeable innovations
  • And a lunatic genius in a garage trying to reinvent the market and put us all out of business (better he is on our payroll than somebody else’s).

Once we have a portfolio of different projects, then we can get cute about balancing the risk.  But only if we have a portfolio.

Post Script

I no longer have all my pension invested with a lunatic genius in Ulaanbaatar.  Mrs Lawther thought it unwise.

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Image by Turning Tide Photography

Comments

  1. Tim Harford’s book, “Why Success Always Starts With Failure: Adapt” has a nice complementary perspective that reinforces the ideas of this post.
    In it he talks about the strategies that seem to lead to long-term success for organizations and species. He identifies three key elements:
    1) Do lots of variations – most of which should be minor variations from the status quo, but include a few that really have you sticking out your neck,
    2) Do the variations on a scale that is survivable – don’t bet the whole farm, and
    3) Selection – seek out feedback and learn from the mistakes as you go.
    And just as you need to evaluate the relative success of the investments in gold (not so great in the past six months) and Ulaanbaatar (don’t know how that one is turning out), if you don’t actually evaluate the outcomes, then having a “portfolio” doesn’t really help.

    • James Lawther says:

      Thanks for your comment Hugh,

      I think it highlights a couple of very good points:

      1. There is so much we can learn from nature
      2. I am wise to invest in a financial advisor

      James

  2. James,

    I like how you chunk up the projects.

    It makes sense that, in business (as in portfolios), there are those things that are easy to invest resources in or do with little risk vs. those that are hard to invest in or do with lots of risk… or vice versa. And making trade-offs based on a variety of factors, e.g., age, maturity, impact, returns, etc. is critical to success.

    Me thinks Mrs. Lawther is a wise woman.

    Annette

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