Portfolio risk analysis

Project portfolio risk management consists of the following stages: portfolio risk identification, risk analysis, development of risk response plans, monitoring and control of portfolio risks . At the stage of risk analysis, the probability and contributions of certain risks of individual projects should be determined, taking into account experience and historical data. Qualitative and quantitative analysis should be performed.

The analysis of the risk level is one of the most important stages, since for risk management it is necessary, first of all, to analyze and evaluate it. There are many definitions of this concept in the economic literature, but in the general case, risk assessment and analysis refers to the systematic process of identifying risk factors and types and their quantitative assessment, that is, the risk analysis methodology combines complementary quantitative and qualitative approaches.

When conducting the analysis, at the input we have a portfolio risk register and a portfolio management plan, while at the output we get an updated portfolio risk register and a portfolio risk exposure table.

Qualitative and quantitative analyzes of portfolio risks are carried out to prioritize identified risks. The information received is important for the subsequent stages of risk management, as well as for subsequent selection and monitoring processes. Organizations can improve portfolio performance more effectively by focusing on higher priority risks. The process of portfolio risk analysis determines the priority of identified risks using the probability of their occurrence and the corresponding effect on the goals of the portfolio. The analysis takes into account the risk tolerance of the organization and all stakeholders. The risk analysis process should be repeated periodically throughout the portfolio life cycle.

1. Portfolio risk register - a list of identified risks and any additional information from previous iterations of project management processes.

2. Portfolio Management Plan. Its component is important - a risk management plan that defines the roles and responsibilities for creating risk management, budgets, planned activities for risk management, risk categories, determining likelihood and impact, probability and influence matrices and tested risk tolerance of stakeholders. If such data are not available, then they should be developed during the analysis.

Assessment of the probability and impact of risk (qualitative analysis)

An assessment of the probability of risk determines the likelihood of each particular risk. The impact of a risk assessment examines the potential effect, both positive and negative, on one or more portfolio objectives.

Probability and impact are evaluated for each identified risk. Risk can be assessed through interviews and meetings with participants who were selected due to similar risk categories. Portfolio management team members and other non-portfolio stakeholders are also involved. Expert opinion is required, as there may be a small amount of risk information from the organization’s database of previous projects, programs and portfolios. In addition, an experienced coordinator may be needed in order to negotiate, as participants may have little experience in risk assessment.

The probability level of each risk and its impact on each goal is assessed during an interview or rally. Explanatory details, including the prerequisites justifying the assigned level, are also recorded. The probability and impact of risks are classified in accordance with the definitions given in the risk management plan. Sometimes risks with an apparently low probability and impact rating are not included in additional studies, but are included in the general category for monitoring.

Instruments:

• Interviewing Techniques
• Probability distributions
• Probability and Impact Matrix
• Financial analysis tools
• Risk Trend Assessment
• Checking project proposals
• Data Accuracy Assessment

The task of a qualitative risk analysis is to identify the sources and causes of risk, projects, the implementation of which there is a risk, that is:

• Identification of potential risk areas
• Identification of risks associated with the activities of the enterprise
• Prediction of practical benefits and possible negative consequences of the manifestation of identified risks

The main goal of this stage is to identify the main types of risks affecting financial and economic activities. The advantage of this approach is that already at the initial stage of the analysis, the head of the enterprise can visually assess the degree of riskiness in terms of the quantitative composition of risks and already at this stage refuse to implement a certain decision.

The final results of the qualitative risk analysis, in turn, serve as initial information for conducting a quantitative analysis, that is, only those risks that are present during the implementation of a particular operation of the decision-making algorithm are evaluated.

Quantitative Risk Analysis

At the stage of quantitative risk analysis, numerical values ​​of the values ​​of individual risks and the risk of the portfolio as a whole are calculated. Possible damage is also identified and a cost estimate is given from the manifestation of risk and, finally, the final stage of the quantitative assessment is the development of a system of anti-risk measures and the calculation of their cost equivalent.

Quantitative analysis can be formalized, for which the tools of probability theory, mathematical statistics, and the theory of operations research are used. The most common methods for quantitative risk analysis are statistical, analytical, expert estimates, and peers.

Statistical Methods

The essence of statistical risk assessment methods is to determine the probability of losses on the basis of statistical data of the previous period and to establish a risk area (zone), risk coefficient, etc. The advantages of statistical methods are the ability to analyze and evaluate various scenarios and take into account different risk factors in the framework of one approach. The main disadvantage of these methods is the need to use probabilistic characteristics in them. The following statistical methods can be used: assessment of the probability of execution, analysis of the likely distribution of the flow of payments, decision trees, simulation of risks, and also the Risk Metrics technology.

1. The method of assessing the probability of execution allows you to give a simplified statistical assessment of the probability of the execution of a decision by calculating the share of decisions made and not executed in the total amount of decisions made.

2. The method of analyzing the probability distributions of payment flows allows for a known probability distribution for each element of the payment stream to assess the possible deviations of the costs of payment flows from expected. The stream with the smallest variation is considered less risky.

3. Decision trees are usually used to analyze the risks of events that have a clear or reasonable number of development options. They are especially useful in situations where decisions made at time t = n strongly depend on decisions made earlier, and in turn determine scenarios for further developments. It involves a stepwise branching of the project implementation process with an assessment of risks, costs, damage and benefits.

4. Simulation is one of the most powerful methods of analysis of the economic system; in the general case, it is understood as the process of conducting computer experiments with mathematical models of complex real-world systems. Simulation modeling is used in those cases when conducting real experiments, for example, with economic systems, is unreasonable, requires significant costs and / or is not feasible in practice. In addition, it is often practically impossible or expensive to collect the necessary information for making decisions, in such cases the missing actual data is replaced by the values ​​obtained during the simulation experiment (that is, computer generated). It is based on a step-by-step determination of the value of the resulting indicator due to repeated experiments with the model.

5. Risk Metrics technology was developed by JP Morgan to assess the risk of the securities market. The methodology involves determining the degree of influence of risk on an event by calculating a “risk measure”, that is, the maximum possible potential change in the price of a portfolio, consisting of a different set of financial instruments, with a given probability and for a given period of time.

Analytical Methods

They allow determining the probability of losses on the basis of mathematical models and are mainly used for risk analysis of investment projects. It is possible to use methods such as sensitivity analysis, a method of adjusting the discount rate based on risk, the equivalent method, the scenario method.

1. The sensitivity analysis is reduced to the study of the dependence of some resulting indicator on the variation of the values ​​of the indicators involved in its determination. In other words, this method allows you to get answers to questions of the form: what will happen to the resulting quantity if the value of some initial quantity changes?

2. The method of adjusting the discount rate based on risk is the simplest and, as a result, the most applicable in practice. Its main idea is to adjust some basic discount rate, which is considered risk-free or minimally acceptable. Correction is carried out by adding the amount of the required risk premium.

3. Using the method of reliable equivalents , the expected values ​​of the payment stream are adjusted by introducing special decreasing coefficients (a) in order to bring the expected income to the amount of payments, the receipt of which is almost beyond doubt and whose values ​​can be reliably determined.

4. The method of scenarios allows you to combine the study of the sensitivity of the resulting indicator with the analysis of probability estimates of its deviations. Using this method, you can get a fairly clear picture for the various versions of events. It represents the development of a sensitivity analysis technique, since it involves the simultaneous change of several factors. The pessimistic scenario of the possible change of variables is calculated, optimistic and most probable.

Expert Assessment Method

It is a complex of logical and mathematical-statistical methods and procedures for processing the results of a survey of an expert group, and the survey results are the only source of information. In this case, it becomes possible to use intuition, life and professional experience of the survey participants. The method is used when the lack or complete lack of information does not allow using other possibilities. The method is based on a survey of several independent experts, for example, to assess the level of risk or to determine the influence of various factors on the level of risk. Then the received information is analyzed and used to achieve the goal. The main limitation in its use is the difficulty in selecting the necessary expert group.

Analog Method

Used when other methods are unacceptable for any reason. The method uses a database of similar completed projects to identify common dependencies and transfer them to the study project.

1. Updated register of portfolio risks (included in the project management plan)

• Classification or priority list of portfolio risks
• Risks are grouped into categories
• List of risks requiring a short-term response
• Low priority risk list
• Risk Analysis Trends

2. Exposure table

• Portfolio Result Probability Analysis
• Probability of achieving portfolio goals

• Project portfolio management models under uncertainty, V. M. Anshin, I. V. Demkin, I. M. Nikonov, I. N. Tsar'kov
• National Competency Requirements, International Project Management Association
• Quality Management Guide in Project Management, S. D. Bushuev
• Center for Economic Analysis and Expertise
• Modern Methods of Project Portfolio Management, D. I. Kendall, S. K. Rollins
• Project Management, I. I. Mazur, V. D. Shapiro, N. G. Olderogge, A. V. Polkovnikov
• THE STANDARD FOR PORTFOLIO MANAGEMENT, Project Management Institute