The primary objective of Portfolio Risk Management is to make sure that portfolio components will achieve the best possible success according to the organization’s strategy and business model. From a risk perspective, this is done through the balancing of risks with the management of positive opportunities and negative threats.
A simple approach of avoiding threats and exploiting opportunities may not result in a complete balancing of portfolio risks. Portfolio Risk Management aligns portfolio components, organizational strategy, the business model, and environmental factors toward the objective of portfolio value optimization and results in a synchronized portfolio execution across portfolio components.
Here are 3 principles that that are central to the management of portfolios.
- Maximize portfolio value while balancing risks
- Foster a culture that embraces change and risk
- Navigate complexity to enable successful outcomes
The result of the combination of these three principles allows a balancing of portfolio components through an organized risk assessment process. This process should be proactively implemented by portfolio management to prevent or minimize loss and encourage opportunity exploitation .
- The Standard of Portfolio Management, Pages 85 – 86