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Topics: Risk Management, Stakeholder Management
Where's that line between stakeholder risk appetite and stakeholder value?

I'd like to better understand this aspect risk management planning: "Stakeholder risk appetite should be expressed as measurable risk thresholds around each project objective."

My companies have had policies to quantify risk; sometimes it was easy to assign a meaningful dollar value, sometimes the methods were less direct. Where can we think of that line crossing the gray area between stakeholder risk appetite and stakeholder value for the project? When is the dollar number so high that it's better not to do the project at all?

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First let me say that value is not monetary value only. Second, let me say that I have lead projects where the risk it so high that when calculate project costs including risk it seems to lost money with the project. But here is where something mostly missing arrives. An initiative is justify because the benefit the solution to create will deliver to the business. The solution is the product/service/result to be created plus the process to create it (the project). Sometimes, as in the case I have mentioned and I can mentioned more than one, the benefit is high no matter the project cost. For example, to get a market position that will put the organization miles ahead from the competitors.

I agree completely with Sergio. While sometimes projects are based on a NPV type perspective, on others it has to be considered how they fit into the project portfolio. Sometimes projects that are losers on an individual cost basis can enable other business opportunities that more than pay for it.

Having worked in a very large company, I have seen a cost threshold broken down by organizational level at who has decision-making authority. The funny thing about risk though, is it only gets charged to your budget if it becomes an issue. If it doesn't materialize you can be a hero. If it does you might find yourself unemployed. Many careers and businesses have been made on the decision of what is too much risk, and whether the team can keep it in the risk category.

Elaine -

When balancing risk of proceeding against the potential value of a project, we are usually focusing on discretionary projects only. For non-discretionary ones, whether we realize any value or the costs far outweigh the financial benefits, we would be forced to proceed.

If we use tools such as expected monetary value, we can quantify the costs of risk realization and if those erode the expected benefits to the point where the project can't be justified, that might be grounds to not proceed if there aren't ancillary, non-financial benefits which are still attractive enough to portfolio decision makers.


Thanks for the replies! I have been in the business of building research instrumentation for National Labs. From the Agencies' points of view, there was indeed a place in the portfolio for the expected instruments "because we need them" that never really had a dollar value. And because the projects were modular, risk elements tended to either be contained within one of several control accounts, or instead to be thought of as manifesting in overall extra costs.

The agencies had an idea what they wanted to spend, say $100M, and an idea how much should be in management reserve and contingency combined, about 30% of the $100M.

Under-performing - or I should say, over-promised - control accounts got scope cuts in mid project; that meant that retired risk did add up for putting scope back in towards the end.

Other stakeholders, like advisory boards and end users, probably never had "risk appetites" that were translated into dollars or put into any plans. If they didn't like what they saw, their reviews would show it. And that in turn would influence the sponsor.

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