What are the best strategies for managing financial risks in a program that spans multiple years?

Diversification of investments, thorough risk assessments, and maintaining a robust contingency fund are key strategies for managing financial risks in a multi-year program. Regular monitoring and adjustments to the financial plan based on changing circumstances also contribute to effective risk management.

Financial risks for programs that are extended for a long period are very common, such as funding fluctuation, Economic recessions or market fluctuations, Inflation or price increase of goods or services, and currency fluctuation that may have a direct impact on the program overall budget and may require extensive risk planning to be taken into consideration during the estimation stages. Because all of the above variables are hard to predict, the estimator should study the worst-case scenarios, in addition to studying the economic changes during the previous period which may be a baseline for future predictions. Holistic Risk management planning is an important pillar in overcoming financial changes and other unforeseen economic changes.

Having precise financial assumptions and objectives is essential for a program to manage funds well. This provides guidance for the plan, controls resource utilisation, identifies potential risks and obstacles, and enables the adoption of proactive mitigation techniques. A recent McKinsey poll found that programs with well-defined objectives have a 20% higher likelihood of success. However, according to a Harvard Business Review survey, 60% of firms said that strict adherence to early financial assumptions prevented them from altering to meet changing market conditions. Rigidity, however, can stifle creativity; methods of financial planning that promote resilience & long-term success require a delicate balance between clarity & flexibility.

Financial terms in agreements should be well planned with different payment terms linked the project phase. Ensure contracts have clauses for negotiating in case of unexpected financial trends in the economy. Based on a realistic assessment of potential risks and uncertainties consider allocating contingency reserves within the budget to handle uncertainties.

Multiple dependencies could trigger a delay in delivery/development of a necessary milestone which impacts overall financial outcomes of the project. Another aspect that I consider is resources planning. Intricate part of which is ensuring availability on every step of the program/project delivery. Last but not least, it is crucial to build an internal alignment with all teams working on the project. Ensuring that resources are reserved for the right time, and no dependencies on other projects/programs could impact the availability.

Identification and prioritisation of financial risks using methods like PESTLE and SWOT analysis to identify hazards and methods like risk matrices and score models for prioritisation are the base of good program management. A comprehensive risk assessment increases the likelihood that a program will reach its financial objectives by 20% (Project Management Journal, 2022). While risk identification is crucial, employing complex methods may cause analysis anxiety. Become flexible in your thinking; too much reliance on complex models can limit your capacity to change. Notably, 2021 Harvard Business Review study reveals that overly detailed risk prioritisation can correlate with slower decision-making, potentially offsetting financial gains.

From my experience, every automation via technology is a must-have to ensure a robust and responsive early warning system on costs you might have. It will keep business updated on a 24/7 basis and more importantly can be presented in convenient form of visual representations like Power BI or Tableau.

Continuous risk monitoring with steering committee with well defined phases, most important part to keep people stay informed about changes in the external environment or in the customer organization that may impact the program financially.

???? Understand where you are right now. You could use a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis ???? Define your strategy and goals ???? Choose your key performance indicators ???? Assess your risks and define priorities. You can use a Risk Assessment Matrix. Feel free to add your thoughts ??

Long-term budget with all anticipated costs over the program's duration with consideration of inflation, resource fluctuations, and unexpected expenses. Reporting tools should be simplified with easy to understand data model with maximum utilization of automation.