Portfolio Management when applied to new product development is simply a multivariate analysis of the factors that determine the importance of a new product development opportunity and a method of assigning a priority to each opportunity.
At it’s basic level it should involve some quantitative analysis of the forecast revenue, profit and return on R&D investment. The biggest challenge here is to get accurate sales forecasts, it’s usually easier to predict R&D costs. I have seen analysis that has used simple statistical analysis of the product financials to take into margins of error for the forecasts and estimates.
More complex analysis of qualitative factors (like technical risk, existing market fit and strategic value) can be achieved by assigning quantitative values to them. At this point the analysis becomes much more interesting – advanced visualisation can be used to determine the viability and priority of each project against the whole portfolio and where it fits in the overall innovation strategy.
Of course it’s important not to get carried away – an incremental approach of starting simple and increasing the complexity of analysis over an extended period of time can deliver early benefits before finding the optimum level.