One of the main objectives of project portfolio management is balancing benefits and areas of emphasis with risks. Benefits and areas of emphasis are often established as a business-related justification, such as cash flow analysis or cost-benefit analysis. Reviewing these aspects allows for the observation of areas of emphasis in the project, such as the required staff resources, acquired services and investments. In addition to these, the review process includes benefits gained from the projects, such as savings and profit. The prevalent view is that costs and savings area is easier to assess than profit related to the results. Profits are often tied to the business environment and its opportunities and challenges.
Risks are part of decision-making
Observing risks as a part of setting goals and making decisions is a vital, yet challenging task. Risks are often either over or underestimated. This is a part of human nature, but the risk position is a key element of a project portfolio. Finding the correct balance requires exertion and learning from each project. Experience allows us to evaluate the overall picture, providing better chances of success.
Managing business environment and risks produces a 65% success rate
Just as the business environment, risks are in a constant state of flux. Success is created by being able to see the overall status and the necessary measures for steering the project portfolio in the right direction. Without sufficient risk assessment, classification and active monitoring, project portfolio management amounts to a gamble. According to studies, “luck” or “coincidence” accounts for on average 10% of success. In contrast, good management of the business environment is estimated to contribute 65% to success. When incorrectly evaluated risks are realized, the result is always a negative one. Overestimated risks lead to insufficient investments, while underestimated risks will lead to insufficient understanding of the magnitude of negative impacts.
Achieving the correct level of project portfolio risk management
The primary mission for any organization is to review the current level of their project portfolio risk management and to prepare a plan for improving it. Improvements hinge on the proactive development of risk management. Top management is always ultimately responsible for organizational errors, but in practice, risk management is the responsibility of the managing director and members of the administrative team. If an organization has not adopted a procedure of regularly compiling a risk report to the administrative team, its project portfolio risk management is not up to par.