One of the portfolio management objectives is to maximize the value of the portfolio – this requires balancing between the opportunities and threats. Also, portfolio management should foster a culture embracing change and risk, while also navigating complexity and enabling successful outcomes (based on Standard For Portfolio Management). That is a lot, especially for large complex portfolios!
Let’s have a look at the portfolio level risk management from the different perspectives!
Golden Eggs or Rotten Tomatoes in the development portfolio?
When working with large complex portfolios, large transformation programs may be impacting the future of the whole organization – business models, operating model, ways of working, operations or sales… Huge transformation or system renewal programs may have huge impacts into organization operations, but also even shake the financials of the whole organization.
When I was quite fresh from the university, I was once working for a large development program, which had been ongoing for several years. Close to the planned go-live, severe issues were identified from the core of the solution, and the whole program was killed without ever going live. Even though this was terrible, that project was a also a learning experience.
I think one of the most challenging things for teams working on such initiatives is to be brave enough and say out loud if there are severe concerns. One of the experienced management consultants working in this crisis program gave us an advice: “You know, management is like a herd of sheep – we do not want to scare them off – so let’s not flag the performance issues.” Now many years and projects later, I still disagree with that advice.
One of the duties of portfolio management is to create objectivity and an environment, where concerns can be shared. Especially for large transformation programs, there should be transparent and active risk management in place. Also looking periodically, e.g. monthly or quarterly into portfolio level risks is a great practice.
Unexpected surprises
Even though good risk management practices would be in place, unexpected surprises may happen.
In another transformation program, we were preparing for corporation finance ERP renewal at the year end. In December, we were informed, that the whole production environment with all our carefully prepared and tested configurations for ~100 companies had been incorrectly setup, and it had to be redone. Oh nooo! New try next year?
Management supported the team by encouraging us to fix the issue, and stayed calm! A lot of team effort during the weekends and some pizza was required, but the team made it. My learning was, that no matter how well we try to prepare, always something surprising happens. But luckily, often times there are also solutions to fix the issues. Good governance should also support managing this type of unexpected surprises and give to support for the needed decision making.
Market Risks – What Is The Risk Appetite?
The recent years have been challenging time for many companies – how to deal with the uncertainty and how to reduce the market risks in the development portfolio?
For the dynamic development portfolios facing also uncertainty within the
- Portfolio reviews & adapting to market changes, see the previous post related to Quarterly portfolio reviews!
- Using scenarios for planning – possibility to look into different alternatives for investments.
- Balancing the development across different geographical areas/segments/technologies – not to put all eggs into one basket
- How much to invest right now? How much to capitalize development?
Portfolio level risks vs. project, program and operative risks
When discussing about the risks in the portfolio context, there are different viewpoints to consider:
- Risks derived from the portfolio components – e.g. risk of cost overrun in portfolio level due to large transformation program or risk of portfolio level delays due to complex dependencies between the initiatives
- Risk of not balancing the development portfolio – too much focus on certain product line, selecting not winning technology, or developing only
- Failure in portfolio execution result into operational risks – example of such case could be failure of core IT systems after the go-live preventing business processes
- Risks of not reaching strategic goals – is the portfolio truly taking the strategy into action?
Strategic Portfolio Management 