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Project Portfolio Risk Management

5 minutes 5 Questions

As a critical concept in Project Portfolio Management (PPM), Risk Management involves identifying, analyzing and responding to project risks, and aims at increasing the likelihood and impact of positive events and reducing the likelihood of negative events in the project. PPM introduces a structured risk management process, which includes risk identification, risk assessment, risk response planning and risk monitoring, and control on a portfolio level. This ensures risk consideration in selection of projects, allocation of resources and decision-making on project continuation. By understanding potential risks across the portfolio, organizations can prepare for uncertainties, reducing the potential for harm and increasing opportunities for benefits.

Guide on Project Portfolio Risk Management

Project Portfolio Risk Management is essential for the successful execution and completion of any project.

What is it?
It is a process used to identify, assess and manage risk in the project portfolio which includes potential obstacles that could impede the progress, performance, or successful completion of a project.

Why is it important?
It helps in predicting any risk factors and allows the stakeholders to take preventive measures, alleviating the negative impact on project objectives such as scope, schedule, cost and the quality.

How it works?
It works in five steps:
1. Risk identification
2. Risk assessment
3. Planning for risk response
4. Risk monitoring, reporting and control
5. Plan execution and risk response tracking.

How to answer questions on Project Portfolio Risk Management in an exam?
• Be clear with the definition and importance of project portfolio risk management.
• Go step by step, explaining all the parts of how it works.
• Bring practical examples and situations.
• Mention the importance of each step in the Risk Management process.

Exam Tips: Answering Questions on Project Portfolio Risk Management:
• Understand the context and frame your answers accordingly.
• Always provide practical and appropriate examples.
• Use the specific terminologies associated with the process.
• Practise similar questions for better retention and quick recall during exams.

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CAPM - Project Portfolio Management Example Questions

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Question 1

Due to a sudden regulatory change, one project in your portfolio is now confronting a high compliance risk. Which approach will you choose?

Correct Answer: Revise project objectives, aligning them with the new regulations and reassess the risk management strategy.

The best approach to tackle a high compliance risk due to a sudden regulatory change is to revise the project objectives and align them with the new regulations, then reassess the risk management strategy. This answer considers the importance of compliance in managing a project and shows responsibility towards adhering to regulatory changes. Ignoring the regulatory changes (even if they might be temporarily) is not an appropriate response because failing to comply with rules and regulations can lead to serious repercussions, like fines or legal action. Taking no immediate action and gathering more information over time isn't the most effective approach either, because during this period of inaction, the project might already be incurring non-compliance risks. As for the idea of terminating the project to avoid future complications, this approach is far too extreme and drastic. It is better to revise and adapt the plan to meet new regulations rather than abandoning the project entirely.

Question 2

As a portfolio manager, you've discovered that a key stakeholder has modified the business strategy mid-way, presenting new unforeseen risks to your project portfolio. What should be your immediate course of action?

Correct Answer: Communicate with the stakeholder to understand the changes and reassess the risk management plan accordingly.

The correct answer is to communicate with the stakeholder to understand the changes and reassess the risk management plan accordingly. This is because, in any project, if there are changes in the business strategy, it's vital to understand what they are and how they might affect ongoing projects. It's then important to reassess the risk management plan to accommodate these changes. Ignoring the changes is not an option as it would show irresponsibility on the portfolio manager's part and it could lead to serious impacts on the project outcome. It's also wrong to stop all projects and start from scratch with the new business strategy because it would cause significant delay and possible financial loss. Lastly, reassigning the risk items to different projects to disperse their impact isn't the right course of action either, because this only disperses the risk, it doesn't eliminate or mitigate it.

Question 3

One of the projects in your portfolio is heavily reliant on an unstable third-party service provider, escalating the project risk considerably. What should you do?

Correct Answer: Review the contingency measures, identify an alternate service provider, and prepare for a potential switch if required.

The best action to take in such situation is to 'Review the contingency measures, identify an alternate service provider, and prepare for a potential switch if required.' This mitigates the potential risk involved and ensures that the project can stay on track even if the third-party vendor becomes further unstable. The 'do nothing' approach is inappropriate because it leaves the project exposed to the risk of complete halt if the third-party service fails completely, thus neglecting the role of a project manager in risk management. The idea of 'taking over the third-party services by expanding the project scope' is not recommended unless the company already has the necessary resources and expertise to provide the third-party service, which isn't mentioned here. Hence, it could lead to an unnecessary increase in project complexity and risk. 'Terminating the third-party contract and pausing the project until the issue is resolved' might be consequential if the resolution time isn't known or is too lengthy. Moreover, it doesn't guarantee the same problem won't occur with the next third-party provider. Therefore, it's a rather excessive action that might not solve the problem.

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