An Algorithm for Business Management Based on Portfolio Optimization

Abstract

An algorithm is derived for active business management. The key component of the algorithm is the definition and solution of an appropriate portfolio problem. For the last one, the disbursements for the business management are regarded as potential portfolio resources. For the portfolio definition, the increases or decreases of the disbursements are assumed to be the assets, whose weights are found as solutions from the portfolio optimization problem. These solutions recommend the reallocation of the resources between different disbursements, which increases the income of the business entity. The definition and solution of this portfolio problem are made sequentially in time, and the obtained solutions are applied as recommendations for future business management steps. An algorithm for business management, based on the sliding mode of repetitive definitions and solutions of portfolio problems with historical data of last disbursements, gives recommendations for the reallocation of resources for the next future period of management. The algorithm is numerically tested with real data on animal husbandry from Bulgaria. The empirical results demonstrate an advantage in increasing the husbandry income in comparison with the lack of such an active business policy. The algorithm can be implemented as a software solution in an appropriate programming system, supporting fintech service for active business management.