This lesson describes:
• Efficient Frontier Curves
• The y-axis and x-axis
• Optimization constraints
• How to apply Recommendations
• How to use portfolio funds as a constraint

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Portfolio optimization helps increase portfolio performance and answer questions, such as based on the available budget, which projects should be invested in to maximize portfolio value? Can a better return be obtained with a lower budget or by shifting time-phased budget allocations? Optimal project selections for different budget values are visually represented on a curve called Efficient Frontier.

    
1. Efficient Frontier Curves.
There are two Efficient Frontier curves that plot all possible optimal project selections based on budgetary constraints. The blue line is the total cost constraint curve. It displays optimal project selection points based only on the total cost constraint.
The gray line is the total and time-phased cost constraints curve. It displays optimal project selection points based on both total and time-phased cost constraints. Use the curves to analyze which constraints are affecting optimal project selection. Can those straints be relaxed? Should additional budget be applied?

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2. The y-axis and x-axis.
The y-axis represents a portfolio value or objective that you want to maximize, such as improving net value or maximizing adherence to strategic priorities. The x-axis represents cost constraint fields, such as total planned budget or forecast. 

3. Optimization constraints.
Optimization is based on manual cost fields or portfolio funds. For manual constraints, select a cost field and set the total cost.
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If you have a cost constraint for each year of the portfolio, enter those values as well.
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In this example, let's say they planned budget constraint of $10 million and then specify how much of that budget is available for the first two years. Next, choose a primary objective you want to maximize. Select net present value.
You can select a secondary objective to maximize or minimize. In this example, let's keep just the primary objective. On the chart, the optimal selection point is represented by an orange circle on one of the Efficient Frontier curves.
In this example, several projects are selected, providing the maximum net present value based on the $10 million budget constraint. 

4. Apply Recommendations.
The optimization may recommend other options based on your objectives and constraints by adjusting or redistributing costs. Compare the changes for each recommendation. This example shows two recommendations. Both suggest that by adjusting the time-phased cost constraints you can include more projects, increase net present value, and still be within the total cost constraint of $10 million. If you like the recommendation, apply it to the current scenario. With this option, the current scenario is updated with the total cost, distribution, and selection of projects recommended. If you want to further analyze the recommendations, create a new scenario for each.

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5. Using portfolio funds as a constraint.
When using portfolio funds as a constraint for optimization, projects are selected that meet fund requirements. Funds are then applied to the selected projects based on restrictions or allocation rules first before money from unrestricted funds are applied.
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When the optimized selection meets your needs, submit the plan for review and approval.
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