Project Portfolio Risk Management: Managing Risk in Case of Investment Portfolio

Project Portfolio Risk Management: Managing Risk in Case of Investment Portfolio

Nicolae Postăvaru (Technical University of Civil Engineering of Bucharest, Romania) and Bogdan Leonte (Technical University of Civil Engineering of Bucharest, Romania)
DOI: 10.4018/978-1-5225-0335-4.ch014
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Abstract

The overall performance of a project portfolios doesn't rely on the successful implementation of the largest or complex projects, but on how the entire group of projects is managed. In most cases organizations don't have sufficient funds to implement multiple projects in a certain time interval and turn to sponsors in order to implement them. Depending on each sponsors' conditions for funding the project the organization has to create a prioritization scheme for accelerating, delaying or abandoning certain projects. The chapter focuses on managing projects and project portfolios risk in regard to sponsor conditions for funding projects, how these conditions together with technical and contractual risks generate new risks that affect the performance of the portfolio. The chapter concludes with recommendations on how to mitigate risks by developing specific methodologies for managing both financial and technical risks.
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Background

Construction projects are considered to have a high level of risk due to numerous stakeholders, long project durations and open production systems (Taroun, 2013). Even though project management and project risk management initially developed mainly because of the construction industry, today the construction industry has poor risk management in comparison to economic bases industries such as finance or insurance. However risk management can provide a solid basis for decision-making in projects and bring important benefits, such as reduced costs, increased engagement with stakeholders and better change management (Bayati, Gharabaghi, & Embrahimi, 2011).

In literature reside a variety or risk management methodologies, some of them concentrate on mathematical models while others on expert judgment and previous experiences. However these standards provide only a very generic description of the method and focus their attention only on high-level characteristics and not on the details of how the method should be performed.

Proper risk management lays in the ability of the users to properly identify and quantify the elements of risk. It is the authors’ opinion that one of the main reasons why most practitioners avoid quantitative risk analysis is because it is considered to be the most difficult, mainly because it is based on advance mathematical and statistical models, making it very difficult to model properly.

In this day and age the complexity and magnitude of projects and project portfolios has drastically increased and more innovative projects with high degrees of risk have begun or are in progress.

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