Risk management is a very important part of project management, and is often ignored by management because they see it as an additional burden.
However, if you apply risk management to your project, there will be a better chance that you will complete your project on time, within budget and with less surprising incidents.
Risk management is a people-oriented process.
Your risk management plan will depend on how your stakeholders see the risks and up to what extent they are willing to take the risk to achieve their business objectives.
If any organization does not take risks, it may slow their growth and limit improvement. An organization that takes risks sees growth in their business, and also increases their creativity and innovation.
To develop a solid risk management plan, the first important step in risk management is to identify as many risks as you can, and the second step is to prioritize and rank them.
You can collect risks with various methods, such as interviews, meetings, workshops, Delphi techniques, etc.
To prioritize and rank the risks, you will have to understand the risk attitude of your stakeholders and the organization, because an important risk for one stakeholder may not be important for another stakeholder. You have to adapt a collective approach to rank the risks.
It is very important for you to understand the risk attitude of your stakeholders and the organization. If you don’t understand it, you will face many problems in developing the risk management plan, because without analyzing the risk attitude of stakeholders, you would not be able to prioritize and rank the risk.
Attitude is inherent with nature, and nature is something you are born with.
Therefore, you can say that risk attitude is inherent to human nature. Some people are scared of risks, some people are neutral to them, and others enjoy them. This behavior depends on that how that person looks at risks.
A risk that is thought to require an urgent response by one person may be considered normal by another person. The risk perception is not absolute; it is situational and depends on many factors.
Knowing the risk attitude of stakeholders makes you well informed about stakeholders’ risk appetite, risk tolerance and risk threshold.
Risk attitude is an enterprise environmental factor that keeps on changing as the project progresses. Therefore, you have to look continuously to your stakeholders for any change in their risk attitude.
At the beginning of the project you may feel that risk is too high; however as the project moves on, risks start decreasing.
An organization or a person can have any of these four types of risk attitude:
- Risk averse
- Risk seeker, or taker
- Risk neutral
- Risk tolerant
Averse means opposing.
A risk averse person or organization is not comfortable with digesting risks. They are not very creative or supportive towards risks. They usually try to avoid risks unless the reward to take on the risks is high enough to outweigh the aversion of the risk.
Risk Seeker or Risk Taker
Seeker means loving.
A risk seeking or risk taking person or organization likes to seek risks if they see any opportunity.They enjoy and find it challenging to deal with risks; however, sometimes this excessive optimism can cause losses.
Neutral means neutral.
As the name suggests, these people or organizations are neutral to risks. These people deal with risks objectively. They analyze risks with various techniques such as Expected Monetary Value (EVM), the Decision Tree Method, or any other tool, and then make an informed decision.
Tolerant means forbearing.
These people or organizations are very comfortable with ignoring risks. They don’t care and never pay any attention to a risk until it becomes an issue. It is the job of a project manager to find the risk attitude of individual stakeholders and any group formed by these stakeholders.
Group mentality is different than individual mentality. The risk attitude of a group of stakeholders might be different than the stakeholders individually.
Moreover, this attitude keeps on changing as the project progresses; therefore, either you have to change the attitude of the stakeholders or adjust the project plan to reflect the current risk attitude of the stakeholders. It is recommended a project manager behave as a risk neutral person and make decisions based on objective evidence.
Risk attitude helps you prioritize and rank the risks, and this is a very important step in developing a risk management plan. A risk management plan depends on the risk attitude of your stakeholders and organization.
If your stakeholders are risk averse or risk tolerant, you will get a fewer number of risks with less priority. However, if the stakeholders are risk seekers you will get a lot of risks with high priority. It will be your responsibility to make a fine balance between these two extremes and behave as a risk neutral person.
This was all about the risk attitude of stakeholders, and here is where this blog post ends. If you have something to share, please share it through the comments section.
This topic is very important from a PMP and PMI-RMP exam point of view. You may see a few questions on your PMP or PMI-RMP exam regarding this topic.