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      Risk assessment (and uncertainty analysis) can have a number of applications in the construction, adaptation and optimisation of project portfolios, to help to ensure that business growth or other objectives are met:

      • Identify, for any assumed portfolio, how likely it is that corporate objectives and targets would be achieved with that portfolio:

      • Identify whether new projects or different activities are required; this is related to the development of strategic options, which is covered separately below.

      • Understand the level of “natural diversification” within it: for example, where cash-producing projects can cover the financing of key investments, so that new calls to financing are not required at the corporate level.

      • Understand the level of residual uncertainty within the portfolio, to ensure it is appropriate and in line with risk tolerances. For example, equity investors generally expect that the business will take some level of risk, but one that is appropriate for its strategic positioning and which is in line with reasonable expectations for a business of that nature.

      • Ensure that commonalities across portfolio elements are correctly evaluated:

      • Common risks could be related to technology, exchange rates, regulatory regimes, price levels, input costs, and so on. A risk that is common to all projects or business units may be important at the corporate level but may only appear to be of medium importance at the project or business unit level.

      • In general, dependencies between the portfolio elements need to be captured correctly in order to avoid either excess or insufficient diversification of the portfolio.

      • Optimise project contingencies within a corporate context:

      • Individual project contingencies, when added up at the corporate level, could be significantly too high (or significantly too low), depending on the contingency level planned for each component (see Chapter 4).

      • The issue of balancing the amount of contingency to hold at the level of an individual item versus at an aggregate organisational level is perhaps one of the most challenging issues in practice, and has implications for organisation design (e.g. issues of centralisation and decentralisation), authorisation processes and project management.