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Sunday, July 8, 2012

Factors that Influence Risk Communication

Before we actually start communicating about risks to our stakeholders we need to first understand the factors that can influence this whole activity of Risk Communication. They are:
a. Risk Attitudes and
b. Psychological Factors

Let us take a look at each of these one by one.

Risk Attitudes

Risk Attitudes refer to the individual’s attitude towards risk. The term risk here not only refers to project risks but also those daily risks that we may face in real-life. The whole idea here is to correlate an individual’s attitude towards risk and the influence it will have on the risk communication activity.

In General:
a. A Majority of the people resist change and
b. People usually over-estimate an unfamiliar risk

Given these two facts, it becomes extremely important that, as project/risk managers we factor in these considerations before we actually start managing risks in our project.

You may be wondering why we are worrying so much about people’s risk attitudes. Are you? If so you will be surprised to know that “Risk Attitudes are directly intertwined with Stakeholder Risk Tolerance” and this is exactly why we are talking about risk attitudes. Effective Risk Management involves dealing with stakeholder risk tolerances which means that that you should understand and know the needs of your stakeholders and influence them accordingly.

People’s risk attitudes can be broadly classified into 4 categories. They are:
1. Risk Averse – These are people that are uncomfortable with any form of risk and try to stay away from risks as much as possible
2. Risk Tolerant – These people are generally not concerned about risks and they don’t allow risks to influence their decision. But, they become surprised when the risk becomes an issue. (Remember the term issue we introduced in the chapter on Important Risk Related Definitions)
3. Risk Neutral – These people embrace risks and look at them as potential opportunities if they have something to gain out of the risk situation
4. Risk Seeking – These people view risks as a challenge and actively look forward to taking risks. These people are the total opposite of the Risk Averse category.

The stakeholders in your project could fall under either of the above 4 categories and as you must have guessed by now, a strategy you can use to satisfy a risk seeking stakeholder will totally back-fire if you try the same on a risk averse stakeholder. So, as the risk managers of the project, it is our responsibility to carefully classify our stakeholders and communicate with them as required. Remember “One Universal Communication Idea” will never work when your stakeholders fall have varying levels of risk tolerance.

Psychological Factors:

Psychological factors are actually the factors that influence how people view or react to risks. In other words, the psychological factors directly influence peoples risk attitudes. Unfortunately this information is not readily available. But, in order to be successful in our job we need to try to gauge the risk attitude of at least the important and most influential stakeholders.

Some psychological factors that might influence people and their risk attitudes are:
• People usually resist change when it threatens their level of comfort
• People usually resist change when they feel they are entering unfamiliar territory
• People are influenced by whether this risk may affect their level of control
• People are influenced emotionally when something brings about a feeling of dread or uncertainty (even if they are misguided)

Different people react differently under the same scenario. Especially when there is loss of control or unfamiliar territory involved. In some cases people’s behavior may be because of a misguided understanding of the risk which has caused an incorrect or unwarranted fear. We need to try to build trust with stakeholders. If we improve their level of trust on us and increase their level of familiarity on the project, it would be easy to explain the various scenarios you may encounter in your project. After all, a well-informed stakeholder who understands the project well and trusts the project manager can always tolerate more risks than one that doesn’t have a clue on what is happening in the project and doesn’t know much about the PM as well.

Prev: Overview of Communicating Project Risks

Next: Stakeholder Risk Tolerance

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