Optimizing Portfolio Allocation with
TOC and Cost of Time
ADVISORY ARTICLE
By Alexander Apostolov, PhD
Sofia, Bulgaria
Introduction
This article aims to answer these questions: what is the purpose of a portfolio of initiatives within an organization and how should resources be allocated to best achieve that purpose?
We will define the portfolio as a group of initiatives (projects and programs) that share common resources. Allocating resources to one initiative limits their availability for others. These initiatives may also have additional interdependencies beyond resource sharing.
I’m going to describe a method for portfolio allocation whose name may sound intimidating, but as you’ll see, the concept is simple.
The Goal of Portfolio Allocation
People create systems—such as organizations—to achieve specific goals. Therefore, an organization’s resource use should serve its goal. The effect of investing resources in a portfolio can be assessed by its contribution to the organization’s goal, for example: for a business—its contribution to profit; for a nation—its contribution to the growth of the UN Human Development Index.
In the Theory of Constraints (TOC), Goldratt defines the goal of a business as “to make money now and in the future.” He proposes measuring this using three key indicators: Throughput, Inventory, and Operational Expense [1, 2]:
- Throughput: The rate at which the system generates money through sales—calculated as sales revenue minus truly variable costs (e.g., raw materials).
- Inventory: The total money invested in things the system intends to sell, including raw materials, work-in-process, finished goods, equipment, and other assets.
- Operational Expense: All the money spent to turn inventory into throughput (e.g., salaries, rent, utilities).
These three factors contribute to the ultimate goal of the organization— generating profit now and in the future. To ensure sustainable profitability, the focus, as Goldratt points out, should be on Throughput, since it drives revenue and has unlimited growth potential. Inventory management takes second priority, helping to free up cash and lower carrying costs. Third is Operational Expense management, which also affects overall profitability. [1]
Thus, a portfolio can contribute to the organization’s goal through one or more of the following four changes:
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How to cite this article: Apostolov, A. (2025). The Combination-Permutation Algorithm: Optimizing Portfolio Allocation with TOC and Cost of Time, PM World Journal, Vol. XIV, Issue VII, July. Available online at https://pmworldlibrary.net/wp-content/uploads/2025/07/pmwj154-Jul2025-Apostolov-Combination-Permutation-Algorithm.pdf
About the Author
Alexander Apostolov
Sofia, Bulgaria
Alexander Apostolov holds a Master’s degree in Economics and a PhD in Project Management and Sustainable Development. He has 25 years of experience in project management for new product development, construction, IT, events, and more.
He is currently the managing director of a project management consulting firm and the Lean Project Management Foundation. His interests lie in the development and implementation of holistic project management methods and tools.
Alexander Apostolov can be reached at contact@leanpm.org and www.leanpm.org.
