How project, program, and portfolio risks differ

- In the realm of strategic risk management, think of project, program, and portfolio management as a game of chess. While a project risk may seem like losing a pawn, unchecked, it can escalate to losing a queen and that is equivalent to failure of a program or even a checkmate which represents a disruption of your business strategy through a collapse of a portfolio. If a software project hits a snag, say coding errors, the ripple effect can be significant. This setback can thwart the broader goal of digital transformation, denting the organization's market competitiveness, a single project risk escalating to affect the entire portfolio. Before managing such a cascade of risks, we must first understand what kinds of risks do we face at each entity? You may broadly classify risks as strategic and tactical. Strategic risks affect long-term goals and strategy of the organization. They're related to selecting and prioritizing the right projects and allocating the right resources across the portfolio. A unique feature of strategic risks is that while they may pose thrust to your project, they may create great opportunities at the same time. A simple example is entering into new markets. Strategic risks are typically driven by external changes, therefore they demand a higher level of perspective and are managed at the portfolio and the program levels under the direction of senior managers and executives. Tactical risks, on the other hand, are related to day-to-day project operations. There are specific to the project's deliverables, schedule, budget, quality, and the performance, and are managed at the project level. Let's look at some examples. Portfolio risks involve the balance and the mix of the portfolio with the right projects to optimize return and spread risk. For example, a portfolio of energy projects including renewable and non-renewable sources may face risks from changes in global oil prices or shifts in government policy on green energy incentives. Other examples include shifts in market trends affecting the business case for the entire portfolio or a major economic downturn impacting funding and the prioritization of all initiatives. Program risks are concerned with the interdependencies between projects and may impact multiple projects within a program simultaneously. Risks at this level could impact the strategic objectives that the program aims to achieve. For instance, a program aimed at implementing new banking software across multiple branches may encounter risks if a regulatory change requires additional compliance features after the program has started. Other examples include a strategic supplier facing financial difficulties or a key technological change impacting all projects within the program. Project risks typically affect the project's so-called triple constraint comprising of course, scope, schedule, and cost. For example, a construction project might face a risk of delay due to unexpected archeological findings at the building site which can lead to halted work and the need for archeological assessments. Other examples are vendors failing to deliver a critical component on time, a key team member falling ill, or a technological tool not performing as expected. Remember the essence of chess lies in protecting the king which represents your overall business strategy. This protection is achieved through the strategic placement and the movement of every piece on the board, each representing a project in your portfolio.