with: II A clear articulation of management philosophy from each portfolio manager. This philosophy statement should identify how the manager expects to extract returns from the market. It should identify ways of knowing when the manager's process is successful and when it is unsuccessful. II A routine position and style monitoring process designed to identify deviations from philosophy or process. This is a type of early warning system. Appendix A at the end of this chapter gives examples of the kinds of information that might be obtained from each manager to help the RMU define and understand each manager's investment philosophy more completely. This list is not meant to be exhaustive, nor is it appropriate for every organization and manager. We provide it here as an example of techniques used in identifying and monitoring "normalcy." For quantitative portfolio measurement tools to be effective, we must have a sufficient number of data points to form a conclusion with a certain level of statistical confidence. For the purposes of the remainder this chapter, we will assume away this issue. In practice, however, the dearth of performance data often hinders the effectiveness of performance measurement tools. In such cases, the organization will be even more dependent on measuring compliance with manager philosophy.20 At this point, we turn our focus to identifying some commonly used performance tools and techniques. (Appendix B, for the reader's reference, is a more mathematical treatment of performance calculation methodologies.) Tool #1-The Groon Zone Each portfolio manager should be evaluated not only on the basis of ability to produce a portfolio with potential (i.e., forecasted) risk characteristics comparable to target, but also on the basis of being able to achieve actual risk levels that approximate target. A manager who can accomplish this task, and earn excess returns in the process, has demonstrated the ability to anticipate, react to, and profit from changing economic circumstances. 20Even though an organization lacks sufficient data to measure the effectiveness of many managers based on their historical results, it still has sufficient information to conclude whether: II A manager's philosophy and practices meet commonsense criteria and are likely to extract risk-adjusted performance from the market. II Each manager's portfolio is consistent with stated philosophy. For example, the RMU should be able to determine that the current portfolio has overall risk levels and risk decomposition characteristics that conform to the manager's philosophy. An administrative process that measures congruence between manager philosophy and actual trades, money management behavior, loss control, position sizing, and so on is also a form of performance measurement, although not one that we intend to deal with in this paper. If the manager cannot articulate his portfolio management techniques effectively, and if adherence to stated techniques cannot be measured, it is difficult to conclude that a process exists which can be replicated successfully in the future.