When managing a financial portfolio, it is often advantageous to periodically rebalance the distribution of investments according to current market conditions. Rebalancing may also be necessary to ensure that the portfolio conforms to pre-established parameters concerning risk tolerance. Such rebalancing is particularly important for investment portfolios with a long-term time horizon. Given the increased application of financial portfolio optimization techniques to strategic water resources planning, it is valuable to understand how rebalancing can and should be applied in this domain. The "market conditions" for water resource systems include changes in population, economic activity, and climate. Water managers must take these into account when developing water budgets and deciding which interventions designed to meet anticipated demand should be funded, reevaluated, and/or implemented. Portfolio rebalancing confers a substantial level of reflectivity in the planning process and can enhance adaptability; one cornerstone of resilience management. This research analyzes a conjunctive water resource system located in a semi-arid region of the southwestern United States and outlines a proposed method for rebalancing a water portfolio in way that enhances system resilience. This research adds to the technical body of knowledge of resource management. It has implications for industrial engineers in practice as well as for researchers in the domains such as systems engineering, engineering management, and engineering economics.
Burgess et al. (Tue,) studied this question.