Project Portfolio Risk Identification and Analysis, Considering Project Risk Interactions and Using Bayesian Networks

An organization's strategic objectives are accomplished through portfolios. However, the materialization of portfolio risks may affect a portfolio's sustainable success and the achievement of those objectives. Moreover, project interdependencies and cause-effect relationships between risks create complexity for portfolio risk analysis. This paper presents a model using Bayesian network (BN) methodology for modeling and analyzing portfolio risks. To develop this model, first, portfolio-level risks and risks caused by project interdependencies are identified. Then, based on their cause-effect relationships all portfolio risks are organized in a BN. Conditional probability distributions for this network are specified and the Bayesian networks method is used to estimate the probability of portfolio risk. This model was applied to a portfolio of a construction company located in Iran and proved effective in analyzing portfolio risk probability. Furthermore, the model provided valuable information for selecting a portfolio's projects and making strategic decisions.