Risk management is an integral part of project management and is often ignored by management, because they see it as an additional burden. However, if you apply it to your project, you have a better chance of completing your project on time, within budget, and with fewer unforeseen incidents.
Your risk management plan will depend on how your stakeholders see the risks and to what extent they are willing to take risks.
If an organization does not take risks, it may slow their growth and even limit improvement. Taking risks can help organizations grow business, and increases creativity and innovation.
While developing a risk management plan, the first step in risk management is to identify risks. The second step is to prioritize and rank them.
To prioritize and rank the identified risks, you need to understand the risk attitude of your stakeholders and the organization. An essential risk for one stakeholder may not be necessary to another stakeholder. You have to adopt a collective approach to rank the risks.
You will face difficulty developing a risk management plan if you fail to understand the risk attitude of your stakeholders. Yu will not be able to prioritize and rank the risks.
A risk that is thought to require an urgent response by one person may be considered normal by another. Risk perception is not absolute; it is situational and depends on many factors.
Some people are scared of risks, some people are neutral to them, and others enjoy them. Attitude is inherent, and it is something you are born with.
Understanding the risk attitude of stakeholders keeps you well informed about the stakeholders’ risk appetite, risk tolerance, and risk threshold.
Risk attitude is an enterprise environmental factor that changes as the project progresses. You have to keep tabs on your stakeholders for any change in their risk attitude.
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 them. They usually try to avoid risks unless the reward to take on them 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 often sees risks as opportunities. They enjoy and find it challenging to deal with risks; however, sometimes this excessive optimism may lead to losses.
As the name suggests, these people or organizations are neutral to risks. These people deal with risks objectively. They analyze 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 risks until they become an issue.
It is the job of a project manager to understand the risk attitude of individual stakeholders and any group formed by them. Group mentality is different from individual mentality. The risk attitude of a group of stakeholders might be different from the individual’s.
Risk attitude keeps on changing as the project progresses. Therefore, either you have to change the perspective of the stakeholders or adjust the project plan to reflect the current risk attitude. You, as a project manager, must behave as a risk-neutral person and make decisions based on objective evidence.
Risk attitude helps you prioritize and rank risks, and a risk management plan depends on the risk attitude of your stakeholders and organization. You will get a smaller number of risks with low priority if your stakeholders are risk averse or risk tolerant. However, if the stakeholders are risk seekers, you will get a lot of risks with high priority. It is your responsibility to create a fine balance between these two extremes and behave as a risk-neutral person.
This topic is crucial from a PMP and PMI-RMP exam point of view. There will be many questions from this topic on your exam.
What are your project stakeholders’ risk attitudes and how do you manage them? Please share your thoughts in the comments section.