Portfolio based approach to project risk management

Risk can be understood as the remaining potential of negative deviation to the business objective. Modern Risk management should provide a tool to describe the whole risk-situation of a company. Particularly, contractors active in the field of geotechnical engineering should not overstress their corporate project risk portfolio. Geotechnical projects often contain for the contractor a large amount of risks which have to be carried by the company in case of risk realisation. Therefore a well-structured corporate project portfolio will consist of a balance of high and low-risk projects. The paper describes the process of risk driven project portfolio management. Starting from risk identification on a project level the paper will deal with methods to accumulate the potential project risks to an overall description of the company situation. This is simply the sum of the risk exposure for each individual project weighted by their probability of occurrence. Probability of occurrence can be described by a Gaussian distribution and the accumulation can be modelled by means of a Monte Carlo Method. Examples for risk identification, measuring and monitoring in geotechnical projects are given. It is shown that it is important to track the project risk exposure over time. Some low-risk projects may become high risk and vice versa. The risk management process eventually provides the necessary basis for a company to decide on the extent of risk it is prepared to retain, or that which must be transferred or financed.