41 How can risk be managed at portfolio level?

Videos 32-39 addressed risk in projects, and David discussed risk in programmes in #40. Before we leave this section of the "100 Risk Questions" series, This video considers how to manage risk in portfolios.
Coming next in the series: Managing Risk in Business (#42-53).

[@roberts8783]

I like to remind people that the purpose of the company includes maximising the risk adjusted return to shareholders (just see the Sharpe ratio). therefore it is all about risk efficiency. And Unless we measure risk we cannot calculate the performance, which is return divided by risk. I think the efficient frontier illustration would have been helpful in this video. This concept is arguably the most important part of risk management in my opinion, as management should be optimising for the highest risk/return, within the companies risk appetite. In the absence of managements inherent agency risk(that they want to save their jobs), the only reason I can imagine for risk appetite to be other than the optimal risk/return frontier, would be perhaps bankruptcy risk (cost of breaking down/setting up companies). Or perhaps risk appetite of non shareholder stakeholders such as environment/community . thoughts?

[@Risk-Doctor]

Thanks for this comment Robert. I agree entirely. This short video is an interview, and the format doesn't include figures or slides, so it wasn't possible for me to show a risk efficiency graph. But in other presentations and some of my books I refer to risk efficiency and explain the importance of the risk efficient frontier, especially when building and managing programmes and portfolios. I've also always emphasised to clients that the goal of risk management is to enable you to take more risk, and to take the right risks safely. Understanding and quantifying the risk/return balance is vital in supporting this approach.
Thanks again for raising this important point.

[@roberts8783]

@@Risk-Doctor u like your sentence "the goal is to enable you to take more risk" . very good !

[@itube.995]

Great

[@Risk-Doctor]

I'm glad you liked this one, thanks.