Simulation-Based Portfolio Forecasting


A couple of weeks ago, I had this question from a potential client: - "How can I explain to stakeholders what simulation adds to a portfolio forecast?". At the time, I answered that you could look at all possible futures and draw conclusions from that. I realized that this answer was not satisfactory because it is kind of difficult to visualize what that means.

In this article, I will create a portfolio revenue forecast based on simulation, and I will then use it to explain how simulations can elevate portfolio analysis.

Portfolio Background

I will use a sample of 17 projects that I like to call the spice portfolio. Each one of the spices represents an R&D asset in development, and in the table below you can see the assumptions that I have used. There are durations, costs, and the probability of success for each phase of development for each asset.

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