Managing a portfolio of risks

Managers and stakeholders concerned about all sorts of entities often face a complex mixture of threats originating from multiple sources. Traditional management approaches that deal with multiple decisions, such as project portfolio management and risk assessment, are focused on single sources of risk or integrate risks using simplified assumptions (e.g., simple addition). Current challenges – including emergency response to natural disasters, homeland security threats, emerging materials, and correlated events – and an uncertain future with respect to societal concerns – for example climate change, economic development, and social/religious instabilities – require integrated application of these methods. This chapter describes a range of risk approaches that enable a flexible approach to risk portfolio management. Decision quality serves as an integrating framework for applying a mix of analytic methods to facilitate successful risk portfolio management. Methods including portfolio decision analysis and risk management as well as other tools from risk analysis, utility theory, and modern portfolio theory from finance help to address complexities of current risk portfolio management challenges.