The Owner's Role in Project Risk Management (2005) / Chapter Skim
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8 Portfolio Risk Management
8 Portfolio Risk Management
Pages 70-76
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From page 70... ...
The knowledgeable owner, whether of stocks and bonds or of active projects, balances the portfolio to achieve an acceptable overall risk level. Portfolio risk management does not imply that an owner should not perform risky projects but rather that the knowledgeable owner is aware of an optimum overall level for risk and adjusts project risks accordingly.
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From page 71... ...
Managing projects through risk assessment and risk management means looking forward, to anticipate future risks, instead of looking backward at past mistakes. The knowledgeable owner applies this process to all active projects in the portfolio, to minimize surprises.
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From page 72... ...
To get started with program-level risk management, an owner needs to have a current risk assessment of all ongoing projects in the portfolio and to establish, on a consistent basis, the vulnerabilities of projects with respect to schedule, cost, and performance risks. This assessment then becomes the baseline for program risk management, and should be updated as: · Projects are completed and removed from the active project portfolio.
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From page 73... ...
Knowledgeable owners set project contingencies to meet risk management criteria at all levels of the enterprise. Portfolio contingency is difficult to control if the project contingencies are not explicitly stated but rather are buried in the project estimates.
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From page 74... ...
Project proponents are motivated to lowball the cost estimates and discouraged from providing unbiased estimation. Even a small lowball bias at the work package level leads to a virtual certainty that budgets will be overrun at the project level.
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From page 75... ...
Any or all of these options may be much more attractive to the project personnel than giving the money back to the program, especially if they feel they are entitled to it by the value of their work or their suffering through past budget cuts. In fact, many people believe that all contingency funds belong to the project and ought to be spent by the project, whether or not the events on which they were contingent ever occurred.
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From page 76... ...
Some sense of common purpose is required to reinforce cooperation and minimize competition so that project estimates are not manipulated up or down, and surpluses are returned to the higher management level. The likelihood of defensive irrational decisions can be reduced by meeting budget cuts or shortfalls by delaying or canceling the lowest-priority projects and fully funding the rest rather than underfunding, and thus delaying, them all.
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