Part II: Benefit Risk


Three Ways to Factor Risk into the Decision to Fund a Project


By Fernando Santiago

Ontario, Canada



Covid-19 has shown us how volatile external assumptions can be in estimating project benefits. In part II of the article “Three ways to factor risk into the decision of funding a project”, Fernando Santiago presents concrete strategies for managing uncertainty in project benefits.

In the first installment of this three-part series[1] we saw that, while risk is usually included as reference information in business cases, it is seldom used to adjust the calculation of value and financials (IRR, NPV), both from the investment and benefits side. In this second installment, we will concentrate on benefit risk and how external factors, out of control of the organization, are the basis of the estimation of benefits. In these times of unprecedented uncertainty caused by Covid-19, assumptions related to the economy and market conditions, likely used in business cases, have to be re-assessed. This article also covers business risk and how it should be considered when assessing a project for approval.

Benefit risk

If there is uncertainty in calculating delivery risk, benefit risk usually has higher uncertainty, as the estimate of benefits is based on factors like the state of the economy and the market, competitor moves and other factors that cannot be controlled by the organization. In addition, when it comes to making a business case attractive, benefits are easier to stretch than investment, and many times benefits get grossly exaggerated just to get the numbers and the proposal approved.

The impact of Covid-19 on the economy and markets is a risk that, while it existed and was identified by many brilliant minds, it would be rare to find in the assessment of investment for projects. For the majority of industries, it came completely unexpected. In risk management we usually talk about those risks that have a very low probability but a huge impact if they happen. An outrageous and unlikely example is a tsunami hitting a nuclear plant; well, it already happened in Fukushima, Japan, 2011. Now the whole world got hit by Covid-19.

We will, at some point, get back to some form of normalcy, when we will assess new projects for investment again. The assessment of benefit risk should follow a similar approach than the one presented in the first installment of this series for delivery risk: assess the project against a list of pre-defined sources of risk. For benefit risk, sources are expected economic growth, interest rates, exchange rates, competitor moves, regulation, etc. When it comes to development of an innovative product, the assumption of being first to market is many times the basis of the estimate. The question is how do we know that competitors will not get there first? Assumptions must be based on facts. Following the example: “competitor X already has the infrastructure needed, and our organization doesn’t,” the assumption of being first to market is an unlikely scenario.

There are three estimates to consider when it comes to assessing the impact on benefit risk:


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Editor’s note: This three-part series is by Fernando Santiago, co-author of the book The Outcome-Driven Organization and Managing Director of P3M Solutions, a Canadian corporation specialized in benefits realization management that provides consulting and training in project, program, and portfolio management (P3M). See his profile at the end of this article.

How to cite this paper: Santiago, F. (2020). Three Ways to Factor Risk into the Decision to Fund a Project – Part II: Benefit Risk. PM World Journal, Vol. IX, Issue IX, September. Available online at https://pmworldlibrary.net/wp-content/uploads/2020/08/pmwj97-Sep2020-Santiago-factoring-risk-in-project-funding-part-2-benefit-risk2.pdf



About the Author

Fernando Santiago

Ontario, Canada



Fernando Santiago, PMP has been a pioneer and innovator on the topic of benefits realization management for more than ten years. He is co-author of the book The Outcome-Driven Organization, as well as several white papers and articles, presentations and webinars. He has also developed original tools and a software application for benefits realizations management. He has worked in financial institutions, energy and technology companies, as well as educational and professional institutions in North America, South America, Asia and Europe. Fernando is a practitioner, consultant and trainer. He is an international public speaker and invited professor at the MBA level.  Based in Ontario, Canada, Fernando can be contacted at fsantiago@p3msolutions.org


[1] Santiago, F. (2020). Three Ways to Factor Risk into the Decision to Fund a Project – Part I: Delivery Risk. PM World Journal, Vol. IX, Issue VIII, August. Available online at https://pmworldlibrary.net/wp-content/uploads/2020/07/pmwj96-Aug2020-Santiago-factoring-risk-in-project-funding-part-1.pdf