Introduction to Portfolio Risk Analysis

 

FEATURED PAPER

By Lev Virine, Eugenia Virine, Michael Trumper

Calgary, Alberta, Canada

 


 

Projects can be part of a larger portfolio in which projects are strategically selected and managed. Project portfolios can share common risks, mitigation and response plans, and resources. Conversely, these same projects exposure to these same risks can vary and have different scores for the same risks. One of the key goals of project portfolio management is to align and prioritize projects based upon the organization’s objectives. Part of this process takes place using an enterprise risk register that contains all the risks the organization faces. Risks from this risk register can be assigned to different projects, and in turn, to each project’s tasks and resources.

Why Perform Portfolio Risk Analysis

Climbing Mount Everest, whose peak sits at 8,848 metres (29,029 ft) above sea level, is one of the riskiest projects in the world: by March 2012 Everest had been climbed 5,656 times with 223 deaths. This works out to a fatality rate of 4 percent (NASA World Observatory 2016).

Outside of conflict zones, it is perhaps one of the most risk endeavors you could imagine doing during peace time.  Add to this, that this is for the most part a non-commercial venture (some expeditions do have sponsors), and these climbers are often actually paying tens of thousands of dollars to be part of an expedition that has a 4% of having the worst possible outcome for them.

Figure 1. Everest’s north face from the Tibetan plateau. Photo by Joe Hastings

Let’s take a look what each climbing expedition involves. Everest has a number of climbing routes; the two main ones include the southeast ridge from Nepal and the north ridge from Tibet (Everest History 2016). Expeditions for the southeast ridge ascent usually fly from Katmandu to the town of Lukla (2,860 m). Before the expedition begins, climbers need to procure all equipment and supplies, hire yaks and human porters, and other logistical preparations. The climbers start the next leg of their journey, the trek up to Base Camp at an altitude of 5,380 m (17,700 ft). This trek usually takes six to eight days, which provides a suitable period to begin the adaptation to the extreme altitude.  This acclimatization process continues for the next couple of days at base camp as the expedition prepares the upcoming ascent. During this period time, Sherpas and other experienced climbers set up ropes and ladders in the Khumbu Icefall. The climb now takes place is a series of short ascents from one camp up to another. First they will climb to Base Camp I at 6,065 meters (19,900 ft).

From there, the climbers make their way up to Camp II or Advanced Base Camp at 6,500 m (21,300 ft). Next is Camp III located on a small ledge at 7,470 m (24,500 ft). The penultimate step is to climb to Camp IV, where the climbers need to pass the Geneva Spur, an anvil shaped rib of rock, which needs to be ascended using robes. The culmination of the ascent is the push from Camp IV to the summit that usually takes 10-12 hours. This final stage is broken down into several mini climbs. First, the climbers need to reach “The Balcony”, which is a small platform at 8,400 m (27,600 ft).

Once they have reached the Balcony, they continue on up to their next goal, the South Summit, a small dome of ice at 8,750 m (28,700 ft). After this, climbers must perform the “Cornice traverse”. Any misstep on this traverse could end up with a fatal plunge of 2,400 m (7,900 ft). If they complete the traverse successfully, they face one last obstacle. Close to the summit there is another a 12 m (39 ft) rock wall. Once this has been cleared, the climbers have a relatively clear path the summit of Mt. Everest. Unfortunately for our hardy adventurers, they face the same steps with the same challenges on their return route. Nothing come easy and if we can see the conquering Everest is not just a single long activity, or project, but really encompasses a project portfolio that can last several years if you take into account the projects involved in preparation.  Each project within the portfolio involves different objectives and resources and needs to be managed separately: the success of attempt at the summit of Mt. Everest depends on how successfully the leaders manage their project portfolio.

Any project within a portfolio has a number of risks; some of them are shared with other projects, but others are specific to individual projects.  In an Everest expedition, a list of critical risks include:

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To read entire paper, click here

 

How to cite this paper: Virine, L.; Virine, E.; Trumper, M. (2019). Introduction to Portfolio Risk Management; PM World Journal, Vol. VIII, Issue IV (May).  Available online at https://pmworldlibrary.net/wp-content/uploads/2019/05/pmwj81-May2019-Virines-Trumper-introroduction-to-portfolio-risk-analysis.pdf

 


 

About the Authors


Lev Virine, PhD

Intaver Institute
Alberta, Canada

 

 

Lev D. Virine, Ph.D. has more than 25 years of experience as a structural engineer, software developer, and project manager. He has been involved in major projects performed by Fortune 500 companies and government agencies to establish effective decision analysis and risk management processes as well as to conduct risk analyses of complex projects. Lev’s current research interests include the application of decision analysis and risk management to project management. He writes and speaks around the world on the decision analysis process, the psychology of judgment and decision-making and risk management. Lev can be contacted at lvirine@intaver.com

 


Eugenia Virine, PMP

Alberta, Canada

 

 

Eugenia Virine, PMP, is a senior manager for revenue development at Greyhound Canada. Over the past 12 years Eugenia has managed many complex projects in the areas of transportation and information technology. Her current research interests include project risk and decision analysis, project performance management, and project metrics. Eugenia holds B. Comm. degree from University of Calgary.

 


Michael Trumper

Intaver Institute
Alberta, Canada

 

 Michael Trumper has over 20 years’ experience in communications, software design, and project risk and management. Michael is a partner at Intaver Institute Inc., a vendor of project risk management and analysis software. Michael has authored papers on quantitative methods in project estimation and risk analysis. He is a co-author of two books on project risk management and decision analysis. He has developed and delivered project risk analysis and management solutions to clients that include NASA, DOE, and Lockheed Martin.