Risk attitude significantly influences project risk identification, assessment, and management. Understanding risk attitudes helps you tailor your approaches to decision-making, resource allocation, and contingency planning.
By aligning risk management strategies with the stakeholders’ collective risk attitude, you can enhance resilience, promote innovation, and more effectively achieve project objectives.
In today’s post, I will explain the risk attitude, its types, and examples.
Risk Attitude
Risk attitude refers to stakeholders’ willingness and preference regarding risk. It reflects how someone perceives and approaches risks and potential outcomes in decision-making. A risk attitude is a state of mind that avoids or sees all risk as an opportunity.
According to the Standard for Risk Management in Portfolios, Programs, and Projects, a “Risk attitude is a disposition toward uncertainty, adopted explicitly or implicitly by individuals and groups, driven by perception, and evidenced by observable behavior.”
To develop a risk management plan, determine your stakeholders’ risk attitudes. Then, you will prioritize and rank the risks. Risk perception is not absolute but situational and depends on the stakeholders’ risk attitudes.
A vital risk for one stakeholder may not be important to another. You have to use a collaborative and unbiased approach to ranking the risks.
Some people fear risks, some are neutral, and others enjoy them. Attitude is inherent, and it is something you are born with. Understanding stakeholders’ risk attitudes makes one aware of their risk tolerance, appetite, and threshold.
Stakeholders’ risk attitudes can change during the project lifecycle, so you must monitor this change and adjust the plan accordingly.
Type of Risk Attitude
An organization or a person can have one of the following risk attitudes:
1. Risk-Averse
Averse means opposing.
A risk-averse person or organization is not comfortable with risks. They have a low tolerance for risk and see them as more significant than they are. These people try to avoid risks unless the reward is high enough to outweigh their aversion.
If your stakeholders are risk-averse, you will identify many risks.
2. Risk-Seeker or Risk-Taker
Seeker means loving.
These people have a higher tolerance for risks and underestimate their severity.
A risk-seeking or risk-taking person or organization sees risks as opportunities. They enjoy and find it challenging to deal with risks; however, this excessive optimism may sometimes lead to losses.
If your stakeholders are risk seekers, you will identify fewer risks.
3. Risk-Neutral
As the name suggests, these people or organizations are neutral to risks and deal with them objectively. They analyze risks using various techniques, such as Expected Monetary Value (EMV), the Decision Tree Method, or any other tool and then make an informed decision.
4. Risk-Tolerant
Tolerant means forbearing.
These people or organizations are comfortable with ignoring risks. They prefer to remain oblivious to risks until they become an issue.
Example of Risk Attitude
During the global coronavirus pandemic, health authorities issued guidelines that included maintaining social distancing, wearing masks, avoiding gatherings, and regularly washing hands. Some individuals diligently followed these guidelines, always wearing masks, avoiding social interactions, and maintaining good hygiene. These individuals are risk-averse and prefer to avoid potential trouble.
Conversely, others disregarded these health guidelines entirely. They didn’t wear masks, ignored social distancing, and behaved as if they were immune to the coronavirus. These individuals are risk seekers, seemingly undeterred by the potential consequences of their actions.
Role of Project Manager in Dealing with Risk Attitude of Stakeholders
A project manager’s job is to understand the risk attitude of individuals and groups of stakeholders. Group mentality differs from individual mentality, and the risk attitude of a group of stakeholders might differ from the individual’s.
Risk attitude can change as the project progresses. Therefore, you must either influence the stakeholders’ perspective or adjust the project plan to reflect the current risk attitude. As a project manager, you must behave risk-neutrally and make decisions based on objective evidence.
Summary
Understanding risk attitude is crucial for managing risk and uncertainties. You must gauge individual and group risk attitudes, which can differ significantly. Stakeholders evolve with the project, as do risk attitudes, which requires you to update the risk management plan to accommodate the current risk attitude of your stakeholders.
Maintaining a balanced, risk-aware approach allows you to make informed decisions based on objective evidence rather than subjective preferences.
This topic is important from a PMP and PMI-RMP exam point of view.
I am Mohammad Fahad Usmani, B.E. PMP, PMI-RMP. I have been blogging on project management topics since 2011. To date, thousands of professionals have passed the PMP exam using my resources.
