What Can Project Leaders Learn From How Financial Planners Manage Risk?

 

A balanced investment strategy has proven to be the most successful approach for maximizing return while reducing risk in an investment portfolio.  Does the same approach apply to the successful management of an organizations project portfolio?

An experienced financial adviser will tell you that a balanced investment strategy is the most successful approach for maximizing return while reducing risk in your investment portfolio.  The investor works to balance return and risk by diversifying investments in both high risk/high return and low risk/low return opportunities.  Understanding each investor's overall risk tolerance is crucial to crafting a meaningful investment strategy.

Successfully managing an organization's project portfolio to maximize return while reducing risk requires the same approach—an understanding of the organization's risk tolerance, and investment strategy that takes that tolerance into account, and an execution that aligns with the organization's strategic and financial goals.

Although there are many organizations that believe it's better to be safe than sorry, that might not be the case.  Value-driven risk management acknowledges that some risks are positive opportunities to be pursued, while others aren't worth worrying too much about, given the likelihood of occurring.

The first step to evaluating the viability of any project is to determine it's potential value, based upon pre-determined metrics that reflect:

1. The project goals
2. The project costs
3. Th project's alignment to the mission and vision of the organization
4. The organization's risk tolerance
5. The project risks and any mitigation plans

Pre-determined metrics for evaluating project objectives, risks, business value, and alignment to organizational strategic and financial goals enable project decision-makers to manage technology and implement systems in a disciplined way that balances the need for positive return from investments with the costs associated with maintaining an innovative and productive line of business.

Maximizing project investments from the ground up depends on how successfully we can manage and lead project teams.  I don't believe that keeping people busy is the challenge—however, choosing the right projects is sometimes problematic for business leaders.

Poor decision-making leads to bad project investments.  Much like how a skilled investment adviser makes decisions, the key to making good project decisions lies with pre-determined metrics for evaluating potential projects to validate initiatives from the ground up.

Project portfolio management software and work management methodologies that facilitate and encourage this type of evaluation before a project even starts will make the process easier to implement—however balancing risk and return is more than plugging numbers into a software program.  It requires an organizational commitment to not only doing projects right, but doing the right projects.

How do you balance risk and reward?