In today's article, I'll test your understanding of risk attitude. We'll also explore different risk attitudes and how they can affect risk evaluations.
Project managers should seek to understand the risk attitudes of key stakeholders because:
A. Risk-seekers overpower risk-averse stakeholders, resulting in greater risk than is appropriate.
B. Risk attitudes can introduce bias and adversely affect the evaluation of identified risks.
C. Negative risk attitudes can reduce a project team's motivation.
D. Risk attitude defines what types of risks stakeholders are willing to pursue.
People have different perceptions of risks. An individual who is risk-averse will likely evaluate risks differently than one who is a risk-seeker. The risk-averse stakeholder has a low tolerance for risks and may see the risks as more significant than they actually are. On the other hand, the risk-seeker has a higher tolerance for risks and may underestimate the severity of the risks. Therefore, it's critical for project managers to understand and balance the bias that arises from risk attitudes.
What is Risk Attitude?
"Risk attitude is a disposition toward uncertainty, adopted explicitly or implicitly by individuals and groups, driven by perception, and evidenced by observable behavior." –The Standard for Risk Management in Portfolios, Programs, and Projects
Range of Risk Attitudes
So, individuals, groups, or organizations may have a wide range of risk attitudes. On one end of the spectrum, some may be extremely risk-averse and focus largely on responding (sometimes excessively) to project threats. On the other end of the spectrum, people may see the risk-reward equation as an exciting opportunity to advance a project. And these stakeholders may be willing to expose the project to an excessive amount of risk (beyond the defined risk tolerance). In the middle, we see risk-neutral stakeholders.
Example: Coronavirus Risk
Individuals have different attitudes towards the coronavirus. Some take every step possible to avoid or reduce this threat. And it's evidenced in their observable behavior – wearing masks while outdoors, driving, and some even while at home.
Others have been much more casual in their tolerance of this risk. These people rarely wear a mask, if at all.
Can you see how these differences of opinions cause division and make it difficult to move forward? The same thing can happen in our projects.
How About You?
Are you considering the risk attitudes of your key stakeholders? And are you seeking to manage the bias that may arise from the risk attitudes?
As you initiate your projects, interview your key stakeholders. During the interviews, be sure to ask some probing questions to determine whether each person is risk-averse, risk-neutral, or risk-seeking. What's driving these perspectives?
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