Nothing like the sun?

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Should risk management and portfolio management be partners in value management?

In my experience the two disciplines are undertaken by different people and in different forums. Fortunately there was a chance to consider how the two disciplines overlap, at a recent joint IRM/APM session on Risk Appetite.

On the 11th July in Manchester, the Institute of Risk Management and the APM Risk Management SIG discussed a variety of risk appetite topics with the subject of value at the core of the discussion, and then listened kindly while I waxed lyrical about portfolio management(PfM) in general, and the overlap of the two disciplines in particular. I think there are three avenues of overlap:

1)Both are about value management. PfM tries to get us to associate value and cost, to determine the optimal configuration of the portfolio. However value should be weighted not just by the intended benefits but also by the risk-to-delivery, ie. the risk of not delivering the benefits. That means using risk assessment as a mathematical adjunct, via efficient frontier analysis, to determine the optimal value of the portfolio. It also means feeding in risk-to-delivery information from project and programme risk assessments.

2)When PfM focuses on strategic alignment it is acting as a form of risk assurance for the portfolio. Strategic risk management is there partly to ensure the organizations strategic goals are well chosen, whereas PfM is about aligning project and programme activity to achieve those goals.

3)In addition, good portfolio accountability ensures financial risk of loss is minimized. In practice this usually means signing off accounts on a regular basis against a senior management review of the entire portfolio.

Turning to the Bard yet again, then ... perhaps our mistress eyes are nothing like the sun, but I think our love as rare as any ... belied with false compare.

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Posted by Achilleas Mavrellis on 23rd Jul 2012

About the Author
A physicist and mathematician by profession, I have been working in government since 2005 as an Operational Research analyst at the Department for Education, the Export Credits Guarantee Department and the Department for Environment, Food and Rural Affairs (Defra). My primary work interests are embedding and supporting the use of management systems in large organisations and the process and behavioural change required to achieve these. For the last four years my work has been focussed on Portfolio Management and Strategic Implementation.

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