A business is subject to multiple environmental risks including market, legal, operational and strategic risk as well as risk from factors like governance and hazards like terrorism, civil unrest and more. An effective Project Portfolio Management (PPM) strategy can help a business be prepared for multiple contingencies, allowing the management team to make more informed decisions. Project Portfolio Risk management can help identify some of these risks in advance to determine what the likely impediments to successful project completion are likely to be.
Managing business environment risks with the project portfolio empowers companies to be able to negotiate fair contracts, make better decisions, and even improve collaboration between teams. Well managed portfolios with robust risk assessment plans are less likely to face project delays or budget overruns.
Knowing the possible financial impact of a certain risk factor, as well as estimating the likelihood of this event can help with more accurate estimates of project ROI (return on investment). PPM software estimates can also help in cost benefit analysis vis a vis environmental risks. What-if scenarios can help with more accurate estimates. For instance, an unstable economic environment, and a prolonged recession can result in overcapacity in the market. This increased competition drives prices down.
A robust PPM strategy can enable a business to react to market pressures quickly and price products competitively in the face of competition. It can also give a business better control over price fluctuations across the supply chain. Internal transfer of production to low cost locations becomes possible if this contingency plan has been worked out in advance.
A change in the business environment, from an increase in input costs that can negatively impact profit margins, to an environmental calamity that can hamper projects, are contingencies that need to be planned for. Managing this environmental risk well improves the ability of a business to be agile and of the management to take quick decisions so that projects may be successfully completed or alternative measures taken.
Implementation of a sound risk management strategy for the project portfolio
A stepwise approach to assessing and controlling project risks must be followed:
- Identifying possible risks: This step may require brainstorming to visualize all possible risks in the business environment from market risks to legal and environmental risks. Background research on recent events and regulatory changes must also be taken into account.
- Analyzing the risks: Each risk factor must be explored in detail to see the likelihood of its occurrence and the outcomes if it does happen.
- Managing the risk: This step requires the team to look at how the company would handle a particular event.
Identifying portfolio risk at a project as well as portfolio level are core to a successful PPM strategy. Periodic risk assessments/reviews are needed to factor in new developments and take corrective action quickly.