Technical Policy Briefing Notes - 5
Portfolio Analysis
Discussion and Applicability
Policy Briefs
Portfolio Analysis
Discussion and Applicability
The
review and case studies provide a number of practical lessons on the
application of Portfolio Analysis to adaptation. They provide useful
information on the types of adaptation problem types where the
technique might be appropriate, as well as data needs, resource
requirements and good practice examples.
Clearly PA is a key tool for helping to identify and analyse alternative portfolios of adaptation options. It has a clear application in cases where adaptation actions are likely to be complementary in reducing climate risks. The technique is not relevant when one option addresses the full range of uncertainty in climate impacts.
Portfolio Analysis has a high resonance with the concepts of iterative risk management, and addresses uncertainty by encouraging diversification (a key part of risk management) with the use of portfolio mixes. It can be used for economic analysis, but can also work with non-monetary (physical) metrics and therefore can be applied in non-market sectors, such as for ecosystem based adaptation (as in the forest case study in the box).
However, the approach requires benefits to be expressed in quantitative terms, either as economic values or physical benefits, thus it is more applicable in cases where data availability is reasonable.
Furthermore, the application of the technique requires probabilities, which makes it more applicable to cases where climate information is good, and some information on climate uncertainty exists.
The formal application is data and resource intensive, requiring a high degree of expert knowledge, which is also a factor in considering applicability.
Finally, in considering the application of portfolio analysis to adaptation, a number of good practice lessons are highlighted. As identified in the second case study on flood risks, there can be issues of inter-dependence between options, and it is therefore good practice to take these into account within the PA analysis.
Clearly PA is a key tool for helping to identify and analyse alternative portfolios of adaptation options. It has a clear application in cases where adaptation actions are likely to be complementary in reducing climate risks. The technique is not relevant when one option addresses the full range of uncertainty in climate impacts.
Portfolio Analysis has a high resonance with the concepts of iterative risk management, and addresses uncertainty by encouraging diversification (a key part of risk management) with the use of portfolio mixes. It can be used for economic analysis, but can also work with non-monetary (physical) metrics and therefore can be applied in non-market sectors, such as for ecosystem based adaptation (as in the forest case study in the box).
However, the approach requires benefits to be expressed in quantitative terms, either as economic values or physical benefits, thus it is more applicable in cases where data availability is reasonable.
Furthermore, the application of the technique requires probabilities, which makes it more applicable to cases where climate information is good, and some information on climate uncertainty exists.
The formal application is data and resource intensive, requiring a high degree of expert knowledge, which is also a factor in considering applicability.
Finally, in considering the application of portfolio analysis to adaptation, a number of good practice lessons are highlighted. As identified in the second case study on flood risks, there can be issues of inter-dependence between options, and it is therefore good practice to take these into account within the PA analysis.
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