My family and I recently ate a great seafood dinner at a restaurant. The owner came by our table and handed my young son a coupon for “free ice cream” that we could redeem at his store next to his eatery. After dinner, we walked over to claim his free ice cream. My son was given a small paper cone of chocolate ice cream with a small flat wooden spoon. He was not give any napkins. My wife struggled to help him eat his treat before it melted and rather through the cone. We eventually wound up throwing most of it in the trash. That led us to remark “there ain’t no such thing as free ice cream.”
Like the mythical free ice cream, organizations also rely on a non-existent portfolio effect. They believe that by diversifying among multiple projects, they will automatically reduce their overall risk. However, unlike buying multiple stocks and bonds, conducting multiple projects at the same time does not necessarily result in a reduction of risk. Unlike financial investments, projects have limited opportunities for saving cost and schedule but significant risks for increases in required resources. Unfortunately, most projects do not conduct risk analysis at the portfolio level. I recently gave a presentation online where I polled the audience about this topic, and 80% of the attendees said that their organizations do not conduct risk analysis for the portfolio of the projects. There is no shortcut to conducting portfolio level risk analysis. You can read more about this issue in my forthcoming book Solving for Project Risk Management: Understanding the Critical Role of Uncertainty in Project Management, which is available for pre-order from Amazon and Barnes and Noble. You can also read Chapter 1 for free, watch a 10-minute video presentation summary or a 40-minute in-depth presentation that summarizes the key ideas in the book.