Portfolio risk analysis by using multi criteria decision making method

Abstract

Portfolio risk management is ever growing and needs to be understood to assist modern project management. A systematic decision making approach is required for helping decision makers to choose wisely under conditions of uncertainty in complex situations where there are several projects running at the same time. This approach should include all the thresholds and criteria which are important for the managers when they want to discriminate between their projects. The aim of this study is to develop a new framework for portfolio management of oil and gas organization which is handling several projects at the same time. The adopted methodology was combination of literature reviews, conducting nominal process and questionnaire survey to highlight the critical criteria from top management point of view when they want to discriminate between the projects. This method resulted in refined framework for structuring the hierarchy of decision making model. A multi-criteria approach has been used to determine the importance and severity of each project with respect to all managerial criteria for decision making. In the end, the severity and importance of the projects have been determined, overall risk severity factor is developed to rank the identified risk within portfolio. The study identified the managerial criteria to cope with portfolio risk management. Moreover, this study established the systematic methodology for using Multi Criteria Decision Making (MCDM) model to determine the severity of the risks in portfolio level. It is hope that this method will form the basis for portfolio risk assessment in oil and gas industry.