Toward Enterprise Approach for Project Portfolio Risk Management

Toward Enterprise Approach for Project Portfolio Risk Management

Michael R. Breault (Northeastern University, USA) and Simon Cleveland (Georgetown University, USA)
Copyright: © 2020 |Pages: 15
DOI: 10.4018/IJITPM.2020040106

Abstract

Extant literature suggests that organizations struggle with risk evaluation as part of their project portfolio selection. The lack of intentional intervention on the part of portfolio leadership, risk management processes, and practices executed by individual projects may not support optimal risk management at the portfolio level. As a result, portfolio managers are tasked with the identification of common risks and opportunities across projects and are required to respond with strategies that are beyond the scope of a project manager's authority. To address the problem, this study identifies the gaps in the extant literature in portfolio approaches to project risk management, recommends techniques for managing common project risks collectively at the portfolio level, and emphasizes the role of the organization in fostering effective risk management at the project level, particularly in the realm of data governance.
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Introduction

While much theory and practice supports the use of risk evaluation as a portfolio selection and balancing tool, as well as on how the portfolio structure itself drives risk out of a business, and indeed many organizations seem to actively integrate risk management into these portfolio management processes, risk management in the project context is often an isolated approach that fails to leverage an organization's full capacity to better manage project risk (Markowitz, 1952; Meulbroek, 2008; Gemici-Ozkan, Wu, Linderoth, & Moore, 2010; Teller & Kock, 2013). In the absence of intentional intervention on the part of portfolio leadership, risk management processes and practices executed by individual projects may not support optimal risk management at the portfolio level.

The connection between theories of financial portfolio management and project portfolio management is well known. However, applying Harry Markowitz’s theories (1952) of portfolio construction as a means of diversifying away project specific risk to an organization’s portfolio management strategy inevitably results in an overemphasis on portfolio construction (Sandøy, M., Aven, T., & Ford, D, 2005). When selecting financial assets to build an optimal portfolio, a fund manager has no more work to do. There is nothing that portfolio manager can do to impact the underlying performance of the assets in their portfolio. Here, then, one should notice an immediate difference with project portfolio management.

While constructing a portfolio of projects does indeed provide a benefit in reducing organizational risk, there is still much that a project portfolio manager can do to continue to influence performance of the projects in their portfolio (Paquin, Gauthier, & Morin, 2016). In fact, they are in some cases better positioned to drive risk out of their underlying projects than the project teams themselves due to luxuries of perspective and economies of scale in risk response (Arena, Azzone, Cagno, Ferretti, Prunotto, Silvestri & Trucco, 2013).

Portfolio managers in a project setting can identify and address common risks and opportunities across projects and craft responses that are beyond the scope of a project manager’s authority. For example they might stockpile critical common inventory with high lead times to obtain price breaks and limit schedule risk, or they might implement a strategic hiring initiative to fill skills gaps impacting multiple projects.

Whatever the action, a stronger business case often exists for portfolio managers to tackle due to more efficiency in costs of pursuit as well as amplified benefits due to increased effectiveness of pursuing such action with the portfolio’s resources (Teller, 2013). There is also greater efficiency and business value in handling certain risks at the portfolio level because the tradeoffs involved in mitigating a risk may impact multiple projects. Therefore, such decisions should not be made in isolation at a project level.

Assessing risks at a portfolio level requires a certain level of risk management maturity and consistency at the project level. Project portfolio organizations can play a role here as well both in implementing policies and supporting processes for risk identification and aggregation, but also in driving best practices down to project teams. Some organizations achieve benefits through the use of corporate risk officers trained in identifying risk, facilitating risk meetings, and performing ad hoc analysis (Ward, 2001). Others have found that a common risk breakdown structure and risk management templates and models facilitate stronger analysis and action (Hillson, 2003).

Some have questioned if there is any value in aggregating project risk data and metrics (Jarrett, 2000). The conclusion drawn suggest that risks cannot be modelled with any great degree of accuracy. However, if organizations are willing to push through the cost of implementation, one could argued they will find benefits on the other side that present a business case worth exploring as extant literature provides evidence of the value of project portfolio risk management (Teller and Kock, 2013). As a result, this study will explores the roll that big data can play in further realizing the benefits of portfolio risk management that have been established through research to date. The key research questions for this study are: Do individual projects, and in turn a broader organization, benefit from conducting risk management in a project portfolio setting, and if so, how?

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