The critical consideration is the aggregate risk of the project portfolio. A single high-risk project can by itself make the portfolio too risky, but diversification (choosing projects whose performance depends on unrelated uncertainties) can reduce portfolio risk. Systematic risks (risks that simultaneously affect the performance of multiple projects) limit the effectiveness of diversification.
At the project level, risks include project risks (the risk that a project may cost more, take longer, or be less effective than estimated) and project deferral risks. Deferral risks may occur, for example, if maintenance projects or projects that replace aging assets are postponed. Also, deferral risks can occur in situations where benefits decline if a project is delayed (e.g., if there is a limited window of opportunity) or if delaying the project might significantly increase its costs. As shown by our risk demo, ignoring deferral risk can result in certain types of projects being significantly undervalued.