PPM 101 How to Manage Portfolio Risk

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This video is based on our blog post "PPM 101 - Portfolio Risk Management", acuityppm.com/ppm-101-portfol...
What is Portfolio Risk Management?
The common view of portfolio risk management involves processes to identify, assess, measure, and manage risk within the portfolio. These steps are similar in procedure with traditional project and program risk management. However, unlike project risk management which is focused on events that could impact the project, portfolio risk management is focused on events that could impact the accomplishment of strategic objectives. The scope of portfolio risk management is far broader than program and project risk management and requires senior leadership involvement.
In our overview of project portfolio management, we highlighted that the goal of portfolio management is to maximize business value delivery. Portfolio risk management is an important success factor in an organization’s ability to deliver more business value. Organizations that proactively manage portfolio risk are better equipped to take on more risk, increase portfolio value, and have a higher rate of successful project delivery. Organizations that ignore portfolio risk management will sub-optimize their project delivery and potentially jeopardize high priority projects. For this article, we will refer to risks as having a potential negative impact on the portfolio, and opportunities as having a potential positive impact to the portfolio.
There are two important components of portfolio risk management: portfolio risk tolerance and the risk management of specific portfolio-level risks. Both components help protect portfolio delivery, but in different ways. We will start with the more traditional view of portfolio risk management and then address how organizations can manage the risk tolerance within their portfolio.
Managing Portfolio-Level Risks
The common view of portfolio risk management involves managing specific portfolio-level risks. These are risks that jeopardize the successfully completion of strategic goals. The purpose of portfolio risk management is to increase the likelihood of positive events and decrease the likelihood of negative effects impacting the project portfolio. This aspect of portfolio risk management largely occurs during the ‘Protect Portfolio Value’ lifecycle phase.
The Project Management Institute says that portfolio risk “is an uncertain event, set of events or conditions that if they occur, have one or more effects, either positive or negative, on at least one strategic business objective of the portfolio”. Portfolio risk management “includes processes that identify, analyze, respond to, track, and control any risks that would prevent the portfolio from achieving its business objectives. These processes should include reviews of project-level risks with negative implications for the portfolio, ensuring that the project manager has a responsible risk mitigation plan.” Organizations that want to improve the delivery success of their projects need to establish portfolio risk management processes.

[@Sepehrasg]

I was looking for Financial risk management but this video was helpful.👍

[@serafinoleoni3824]

good explanation 👍🏻 thank you

[@AcuityPPM]

Glad it was helpful!

[@user-bn4uo4oe3u]

yes!

[@oktabriyansyah9362]

hi, good explanation 👍🏻. I have some questions - how can we define portfolio - level risk (when we have programs and projects)? - how to calculate the aggregation from value risk from project to program and become a total risk value in portfolio? - is it true of bottom up concept to define portfolio level risk or top down? thank you

[@AcuityPPM]

Good questions. Part of the portfolio risk management process is to define the types of portfolio risks you want to watch for. Essentially, portfolio level risks are risks that negatively impact strategic accomplishments. These tend to be risks that impact multiple projects and programs in the portfolio. These risks are bigger than any single project likely will manage. Calculating a portfolio risk score is dependent on having a scoring model in place as well as tracking project and program budgets. By linking the project/program risk score with their weighted budgetary contribution to the portfolio, we can calculate an aggregate portfolio risk score. You can schedule a free session to discuss further by clicking on this link: calendly.com/acuityppm/15min

[@jayshankarchinnaswamy965]

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[@jayshankarchinnaswamy965]

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[@AcuityPPM]

Thank you for the feedback!