Risk Attitude in Project Management c

Risk attitude has an important role in risk management, and any error in risk attitude can influence the effectiveness of your risk management and ultimately the success of your project

The risk management plan depends on your organization and stakeholders’ risk tolerance or attitude, which is to what extent your stakeholders are willing to take risks.

If an organization does not take risks, it may slow its growth and even limit improvement. Taking risks can help organizations grow business and increase creativity and innovation.

Risk Attitude

A risk is an unplanned event that, if it occurs, will have a positive or negative impact on your project, and attitude is a state of mind that either avoids all risk or sees it as a growth 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.”

You must first identify and measure the risk attitude of your stakeholders in order to develop a risk management plan; subsequently, you will prioritize and rank them. Risk perception is not absolute; it is situational and depends on the risk attitude of the stakeholders.  An essential risk for one stakeholder may not be important to another stakeholder. You have to adopt a collective and unbiased approach to rank the risks.

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. Failing to properly understand your stakeholders’ risk attitude will affect your risk ranking, which 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.

Type of Risk Attitude

An organization or a person can have one of the following risk attitudes:

  1. Risk-averse
  2. Risk-seeker or taker
  3. Risk-neutral
  4. Risk-tolerant

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 actually are. These cautious 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.

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 often 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.

Risk-Neutral

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 (EMV), the Decision Tree Method, or any other tool, and then make an informed decision.

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

Let me give you a real-world example of a risk attitude.

Consider the current global pandemic situation of the Corona Virus. Health authorities have issued guidelines to maintain social distancing, wear masks, avoid gathering, and regularly wash hands.

Now you will notice that some people are following these guidelines religiously. They always wear masks, avoid meeting with anyone and wash their hands regularly, etc. These are risk-averse people and don’t like trouble.

On the other hand, you will see few people who do not follow any health guidelines. No mask, no social distance, behaving as if they are immune to Corona Virus. These people are risk seekers.

Role of Project Manager in Dealing with Risk Attitude of Stakeholders

It is the job of a project manager to understand the risk attitude of individuals and groups of stakeholders. Group mentality is different from individual mentality, and the collective risk attitude of a group of stakeholders might be different from the individual’s.

Risk attitude can change 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. As a project manager, you must behave as a risk-neutral person and make decisions based on objective evidence.

Summary

The risk attitude helps you prioritize and rank risks. You will get a smaller number of low-priority risks if your stakeholders are risk seeking or risk tolerant. However, if the stakeholders are risk averse, you will get a lot of risks with high priority. It is your responsibility to create a fine balance between these two extremes and operate from a risk-neutral position.

Risk attitude is crucial from a PMP and PMI-RMP exam point of view, and you will see many questions about 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.