The Risk Trifecta – Aligning Organisational, Portfolio and Project Risk Management

The world is experiencing the most turbulent times since the 2007 – 2008 Global Financial Crisis. From market volatility and technological disruptions to ongoing conflicts and climate change, the challenges for organisations are numerous.

As a result, organisations are increasingly looking at ways to proactively prepare for and mitigate risks. It’s no longer enough to manage risks in silos or have different systems and methodologies for different areas of the business. There needs to be a cohesive risk ecosystem that integrates across the entire organisation.

When creating a comprehensive organisation wide risk management framework to align organisational, portfolio and project risk management there are three key components to consider: Integrated Risk Management (IRM), Project Portfolio Risk Management (PPRM) and Project Risk Management (PRM).

Integrated Risk Management

Integrated Risk Management (IRM) is designed to manage risk across the entire organisation. It covers all types of risk including strategic, operational, financial and compliance and how they interrelate with each other. The purpose of IRM is to provide a comprehensive overview of the risk profile of the organisation to allow the C-suite to make informed decisions.

IRM typically involves:

1. A top-down approach that aligns risk management with strategic objectives
2. Cross-functional collaboration to identify and manage interdependent risks
3. Standardised risk assessment methodologies and metrics
4. Continuous monitoring and reporting of risks across the organisation

Project Portfolio Risk Management

Project Portfolio Risk Management (PPRM) is below IRM in the hierarchy and specifically focuses on identifying and managing risks within an organisation’s portfolio of projects. The aim is to balance risk across the portfolio and ensure the portfolio outcomes align with the organisation’s strategy.

PPRM typically involves:

1. Aggregating risks from individual projects and programmes
2. Assessing the cumulative impact of these risks on the portfolio
3. Prioritising projects based on their risk-reward profiles
4. Managing interdependencies between projects within the portfolio

Project Risk Management

Project Risk Management (PRM) focuses on identifying, managing and reporting on risks throughout the lifecycle of individual projects. PRM is an integral part of project management.

PRM typically involves:

1. Identifying potential risks specific to the project
2. Analysing the probability and potential impact of these risks
3. Developing response strategies for each significant risk
4. Monitoring and controlling risks throughout the project lifecycle
5. Balancing threats (negative risks) with opportunities (positive risks)

Integration of Integrated Risk Management, Portfolio Project Risk Management and Project Risk Management

While the three components work at different levels in the organisation it’s important that they work together to create a cohesive, organisational wide, risk management system.

Hierarchical risk structure

IRM provides the overarching framework that PPRM and PRM operates within. This creates a clear hierarchy of risks, from strategic organisational risks down to individual project risks. This structure allows for better risk categorisation and management at appropriate levels.

Multidirectional Risk Flow

Integrating IRM, PPRM and PRM ensures a multi-directional flow of risk information:

• Top-down: Strategic risks identified through IRM can be cascaded down to the portfolio and project levels.

• Bottom-up: Significant project risks identified through PRM can be escalated to the portfolio level (PPRM) and potentially to the organisational level (IRM) when they meet certain criteria.
• Horizontal: Risks and mitigation strategies can be shared between projects within a portfolio.

Consistent Risk Language and Metrics

By aligning the risk frameworks used in IRM, PPRM and PRM organisations can ensure consistency in how risks are described, measured and reported across all levels.

Comprehensive Risk Aggregation

PRM identifies and manages risks at the project level. PPRM then aggregates these risks to the portfolio level. Finally, IRM consolidates portfolio risks with other organisational risks to provide a 360 degree view of the organisation’s risk exposure.

Aligned Risk Appetite

IRM establishes the overall risk appetite for the organisation. This can then be translated into specific risk tolerances for portfolios (PPRM) and individual projects (PRM). This alignment ensures that risk-taking and management at all levels is consistent with the organisation’s overall risk strategy.

Resource Optimisation

The combination of IRM, PPRM and PRM allows for more effective resource allocation. IRM provides the strategic context for resource decisions, PPRM helps optimise resource distribution among projects, while PRM ensures resources are effectively used within each project to manage risks.

Enhanced Strategic Alignment

By integrating IRM, PPRM and PRM organisations can ensure that project-level risks are always considered in the context of portfolio and broader strategic objectives. This alignment helps in making more informed decisions at all levels.

Improved Risk Identification

The collaborative nature of this integrated approach can lead to more comprehensive risk identification. Risks that may be overlooked when considering projects in isolation can become apparent when viewed in the broader portfolio and organisational context.

Implementing an Integrated Approach

To successfully integrate IRM, PPRM and PRM organisations should consider the following steps:

1. Establish a common risk framework that can be applied across the organisation, portfolios and projects.
2. Implement technology solutions that can aggregate and analyse risk data from multiple sources and levels.
3. Develop clear processes for risk escalation and de-escalation between project, portfolio and organisational levels.
4. Provide training to staff at all levels to ensure a common understanding of risk concepts and processes.
5. Regularly review and update the integrated risk management approach to ensure it remains effective and relevant.

Conclusion

By integrating IRM, PPRM and PRM organisations can create a seamless, comprehensive approach to managing risks. This integration provides a clearer picture of the overall risk landscape, enables more informed decision-making and helps align risk management activities with strategic objectives across all levels of the organisation.

Organisations that successfully bridge the gap between these three levels of risk management will be much better equipped to navigate uncertainties, seize opportunities and achieve their strategic goals.

How Psoda Can Help Achieve Seamless Risk Management

To support seamless organisational, portfolio and project risk management, organisations need robust tools and platforms that can support Integrated Risk Management, Project Portfolio Risk Management and Project Risk Management. This is where Psoda comes in. Psoda’s comprehensive suite of project, programme and portfolio management tools includes powerful risk management features that can help organisations bridge the gap between IRM, PPRM and PRM.

Psoda’s risk management module creates a hierarchical risk structure, allowing for the management of risks at project, programme, portfolio and organisational levels.. This aligns perfectly with the need for a multi-directional risk flow in an integrated approach. The platform’s consistent risk assessment methodologies and metrics ensure a common risk language across all levels of the organisation.

With Psoda, organisations can easily manage risks at the project level (PRM), aggregate these risks to the portfolio level (PPRM) and integrate them into the broader organisational risk landscape (IRM). This provides a holistic view of the risk ecosystem from the ground up. The system’s customisable dashboards and reporting features facilitate streamlined risk reporting, ensuring that stakeholders at all levels have access to the risk information they need.

Psoda’s integration capabilities allow for the alignment of risk management with strategic objectives, resource allocation and other key organisational processes. This integration supports proactive risk management by making risk information readily available and actionable at all levels – from individual projects to the entire organisation.

By leveraging Psoda’s capabilities, organisations can implement a truly integrated approach to risk management, seamlessly combining the strengths of IRM, PPRM and PRM. This not only enhances risk visibility and control but also drives better decision-making and strategic alignment, ultimately leading to improved organisational performance and resilience in the face of uncertainty.

See Psoda’s Risk Management in Action

Schedule a free, personalised demo with our CEO to see firsthand how Psoda’s integrated risk management functionality can transform your organisation.

Written by Rhona Aylward

Rhona is Deputy Everything Officer at Psoda, where she does everything except code. After starting life as a microbiologist she moved into PMO leadership roles around the world before settling in New Zealand with her family.