How We Choose the Mix
Money already spent gets no vote.
From values to a portfolio
Valuation has given every investment in the pool a comparable number — a forward value, arrived at honestly, using the model suited to what each investment actually is. The pool is now ready for the hardest question: which of these should actually be funded?
The answer is not simply “take the highest-scoring investments until the money runs out.” That approach produces a list, not a portfolio. It ignores whether the money actually corresponds to available people. It ignores whether the resulting set is dangerously concentrated in one kind of bet. It ignores whether the mix has anything for tomorrow, or only things for today. Choosing the mix is the act of moving from a ranked set of values to a coherent, deliberate portfolio — one that the pool can actually afford, that the strategy needs, that the risk appetite permits, and that holds together as a set rather than a collection of individually-justified decisions.
This chapter is where the constraint meets the aspiration, and reality wins.
The funding line and what it means
Every portfolio has a pool. The pool has a bottom. The funding line is the point at which the money runs out, and everything above it is funded and everything below it is not.
In practice the funding line is not a clean horizontal cut through a ranked list. It is negotiated against several simultaneous constraints, applied in order. The starting point is the total available pool — the sum of money committed to portfolio investment for the period. This is not a number the portfolio sets; it is a number the portfolio receives. Working within it is the entirety of the job.
The first application of the pool is to existing commitments — investments already funded and running that have been re-entered into the comparison and are still above the line on forward value. They are not automatically continued; they earn continuation. But if they earn it, their remaining cost-to-complete is the first claim on the pool before any new investment can be considered.
What remains after covering the continuing investments — if anything remains — is available for new commitments. This remainder, measured against the demand for it, is where the real scarcity is felt. In a drifted portfolio of the kind described in Chapter 1, this remainder is often near zero, because the pool has already been committed to a set of incumbents that have been quietly auto-renewing for years. Making the remainder visible — and making explicit the choice between continuing an incumbent and starting something new — is one of the most valuable, and most uncomfortable, acts the demand and valuation stages enable.
The funding line is not a finding. It is a choice. Where it falls is a direct consequence of which incumbents were allowed back above it, and that choice deserves the same scrutiny as any new proposal.
Capacity versus demand
The funding line is drawn in money. But money is not the only constraint. People are, almost always, the binding one.
A portfolio funded to capacity on paper, but that exceeds the organisation’s ability to staff and run it, does not run at the funded level. It runs at the staffed level, more slowly, with more collisions between teams, more half-started initiatives that cannot get the expertise they need, and more of the quality erosion that comes from people spread across too many things at once. The effect of exceeding the staffing constraint is not proportional expansion — it is the deterioration described in Chapter 1’s dilution cost, only now deliberately caused.
“A portfolio is only as large as the people it can actually put to work. The rest is ambition parked in a spreadsheet, accruing interest in the form of delay and quality debt.”
Capacity planning at the portfolio level is not the same as project-level resourcing. The portfolio does not schedule individuals or manage timesheets. It asks a coarser and more important question: do we have, in aggregate, the critical skills and capacities to run this set of investments at the funding level we are considering? The answer requires knowing which skills are genuinely scarce — the ones that appear across multiple investments and cannot easily be increased — and sizing the funded set against the realistic supply of those skills.
When the honest answer is that the funded set exceeds the staffed capacity, the portfolio has two options and only two: descope the set (stop or defer investments until capacity is available) or increase the capacity (hire, contract, or stop doing other things). Declaring the portfolio “aspirational” and proceeding anyway is not a third option. It is a decision to run a portfolio that will dilute its own investments, chronically miss its commitments, and produce less total value than a smaller, honestly-staffed set would have done.
Balance across four dimensions
Even a set of investments that fits within the money and the people is not yet a portfolio unless it is balanced. Balance is what separates a set of individually-justified investments from a set that is coherent as a whole. There are four dimensions that require active management.
Risk and return
The selection criteria will have already filtered out investments whose individual risk is unacceptable. Balance adds a portfolio-level question: what is the overall risk profile of the funded set? A portfolio that is within the risk tolerance for each investment but where every investment is moderately uncertain at once is exposed to a bad year in a way that a genuinely balanced set — some safe, some speculative, some in between — is not. Conversely, a portfolio so heavily weighted to safe incremental work that there is nothing uncertain in it is guaranteed to under-invest in its own future.
The risk appetite set in Direction governs this: it specifies how much exposure to uncertainty the portfolio can carry, in aggregate, at any one time. Choosing the mix is where that appetite is actually applied — where the composition is inspected and, if necessary, rebalanced until the mix fits the stated appetite, not just the individual risk scores.
Time horizon
A portfolio invested entirely in near-term returns is safe today and fragile next year. A portfolio invested entirely in long-term bets is strategically interesting and operationally insolvent. Both are failures of balance.
Horizon balance asks: of the investments in the funded set, how much is creating value in the short term (within the next reporting period), how much in the medium term (one to three years), and how much in the long term (beyond three years, or uncertain)? The right proportions depend on the strategy and the organisation’s current position, but the minimum requirement is that all three horizons have something — that the portfolio is not entirely consumed by the pressing at the expense of the important.
This is the second reason funding buckets earn their place, beyond the defensive one introduced in Direction. Buckets can explicitly protect each horizon by ensuring a minimum allocation to each — preventing the medium and long horizons from being crowded out in any single period by the always-compelling case for what needs to be done right now.
Strategic coverage
The strategy typically has several themes or objectives. A funded portfolio should advance each of them, or explicitly acknowledge which are deprioritised and why. A set that over-concentrates on one strategic objective and leaves others unaddressed is not a portfolio that reflects the strategy; it is a portfolio that reflects the strongest sponsor.
Strategic coverage asks: looking at the funded set as a whole, which strategic objectives are progressed, which are neglected, and is that neglect intentional? If it is intentional — if the strategy genuinely prioritises one objective above the others this period — it should be visible and stated. If it is accidental — if a strategic priority simply has no strong investment candidates and nobody noticed — that gap is information the portfolio should surface to the strategy, closing the upward link.
Run-the-business versus change-the-business
The most common balance failure is the slow erosion of investment in the future by the insatiable demands of the present. Run-the-business investments have the strongest and most immediate justification: operations will suffer if they are not funded, and operations are visible in a way that foregone growth is not. Change investments compete with each other for a share of what remains.
The funded set should have an explicit view of what proportion is running versus changing, and that proportion should be a deliberate choice, not an accident of which proposals were strongest. Where funding buckets are in use, this is managed through the bucket sizing. Where they are not, it requires a direct inspection of the funded set and a willingness to underfund a run-the-business investment — a genuinely uncomfortable act — if the run/change balance has tilted too far.
Concentration risk
Concentration risk is the fourth dimension given its own treatment, because it is the most commonly ignored and, when it lands, the most damaging.
A portfolio is concentrated when too many of its investments share a common dependency — a single technology platform, a key supplier, a single market, a specific regulatory assumption, a scarce skill set, or a strategic hypothesis that several investments are all betting on simultaneously. If that dependency fails — the platform doesn’t scale, the supplier has a problem, the market assumption proves wrong — the portfolio does not lose one investment. It loses several at once.
Concentration risk is what turns a bad year into a crisis. Individual investment risk is managed by the selection criteria. Concentration risk is managed only at the portfolio level, by someone looking at the whole set and asking what they are all quietly depending on.
The check for concentration risk is a habit of mind, not a formula. Looking at the funded set, the question is: what would have to go wrong for more than one of these to fail simultaneously? The answer names the concentration. Whether the concentration is acceptable depends on the risk appetite and on the portfolio owner’s view of how likely the shared dependency is to fail. High concentration on a stable, mature dependency is a different matter from high concentration on a new, unproven technology or a geopolitical assumption the strategy made a year ago and has not revisited.
Where concentration is found to be unacceptable, the portfolio has three responses: stop or reduce one or more of the concentrated investments, add an investment that diversifies the exposure, or explicitly accept the risk and note it for the next Review. The worst response — the most common one — is not to notice.
Funding buckets in action
With the balance dimensions in view, the role of funding buckets at the choosing stage becomes fully operational. Buckets, set in Direction, have defined the approximate proportions of the pool pre-committed to each category. Choosing the mix within a bucket means running the full comparison — forward value, capacity, balance — for the investments competing within that category, setting the funding line for that bucket, and stopping when either the money or the capacity runs out.
The sizing of the buckets is itself a choice — and a recurring one. Between periods, when the strategy is reviewed or the reference framework rebalanced, the bucket sizes are resized to match: a strategy that has shifted toward growth expands the change and innovation buckets; a strategy of stabilisation expands the run bucket. The resizing is a portfolio-level decision, not a per-investment one, and it happens before the within-bucket competition runs.
The protection buckets provide is most visible at the moment of competition: without them, every investment in the pool competes for the same money, and the safe, certain, near-term case reliably wins. With them, the innovation budget can only be taken by innovation candidates — a candidate that would lose against a run-the-business investment in open competition wins, within its bucket, against other innovation candidates that it is actually comparable to.
Making real trade-offs
The final act of choosing the mix is the one that distinguishes a portfolio that is managed from one that is merely administered: making the trade-offs explicit, visible, and owned.
A real trade-off is not “we cannot afford Investment A.” It is “we are choosing Investment B instead of Investment A because, at this funding level with this strategy and these weights, B creates more forward value from this pool.” The candidate below the funding line is not a failed proposal; it is the named cost of funding the one above it. That cost should be stated and visible, because it is the most honest account of what the portfolio is choosing not to do — and the portfolio’s choices include its omissions.
“A portfolio decision that does not name what it is declining is a decision that has hidden half of itself. The funded set and the declined set are equally the portfolio’s choices.”
At every setting, from Lean to Enterprise, the test of a well-run choosing process is the same: can the people who made the decision explain, specifically, why each funded investment is in rather than the ones that are out — in terms of the framework, the weights, the capacity, and the balance? If the answer is yes, the portfolio can be challenged and improved. If the answer is a general sense that these are the right things, the portfolio is being governed by intuition, which means it cannot be held to account.
How We Choose the Mix at three settings
| Aspect | Lean | Managed | Enterprise |
|---|---|---|---|
| Comparison | Owner reviews the scored list against capacity and makes the call, visible on a single page | The board reviews a scored comparison table at the regular meeting | Formal comparison session with scored submissions, capacity confirmed, balance checked explicitly |
| Capacity check | Owner’s knowledge of the team | A capacity-vs-demand view maintained each period | A formal capacity model by skill category, updated before each cycle |
| Balance check | Owner’s judgement of the mix | A balance view across risk/horizon/rtb-vs-ctb reviewed at the board | Formal portfolio balance view, reviewed by the governing board before funding is confirmed |
| Concentration check | A deliberate question: what are these all depending on? | A dependency review at the comparison session | A formal concentration review as part of the cycle |
| Trade-off record | A note of what did not make the cut and why | A record in the demand log of declined candidates and the reason | A formal record, version-controlled, reviewed at each subsequent cycle to check whether circumstances have changed |
With the mix chosen — funded above the line, staffed against real capacity, balanced across risk, horizon, strategic coverage and run-versus-change, and free of unacceptable concentration — the portfolio has its decisions. The next stage, Fund, is where those decisions become commitments: the money is released, the tranches are structured, and the rhythm of funding is established.