Join Bob McGannon for an in-depth discussion in this video Understanding your stakeholders' risk tolerance, part of Project Management Foundations: Risk.
Projects involve people, and people aren't all the same. Those differences can be even more drastic When dealing with the threats of risk. So, you can hope that you will pick up these differences as you go along, or you can be more methodical in understanding your stakeholders. Personally, I recommend being more methodical. The critical element to methodically understanding how your stakeholders will react to risk, is to understand their risk tolerance. With that information, you can determine the level of effort, focus, and attention that's required in your risk management approach.
There are two components to understanding risk tolerance, the people element, and the appraisal element. Let's take a look at the people side of things. First, be prepared for the fact that your stakeholders, sponsors, and the people on your project team will each tolerate risk differently. Some people are prepared to jump out of airplanes for fun. Some people are cautious walking down stairs. And there's everyone in between. You need to take this into consideration when you talk about risk in your project.
The key is to always listen carefully as you discuss elements of your project. The second thing to keep in mind, is that people have a natural tendency to want to protect scope, time, or money when these triple constraints are discussed. Which way they lean will depend upon their prior experience, the organizational culture they're used to, and the particulars of your project. For example, one organization I know of is involved in yearly industry trade shows.
At these shows, the company is expected to display new products. If they don't have new products ready to show off at the trade shows, it'll impact their business. A project stakeholder in this instance will be totally focused on time constraints, because it is critical they have products ready to demonstrate at the trade show. Risk impacts to cost and scope are a much lower priority for them. In another scenario, which demonstrates a different risk tolerance, there are regulated industries where scope is of critical importance.
Your project might be fulfilling commitments that are legislated by law. Compliance and scope considerations, along with on-time implementation to meet legal requirements will be top of mind for your stakeholders. Cost might take a bit of a back seat in these instances. While considering people's risk tendency, you should also take the second risk tolerance component into consideration. Performance appraisals. How is your stakeholder being appraised by their manager? What are they being told they're doing well, and what do they need to improve? To obtain this information, it is absolutely fundamental that you post critical questions, and listen to the answers you receive.
Without directly asking about their personal performance appraisal, you can ask them "What outcomes are you most excited about, "and what potential negative outcomes most concern you?" If you have these candid discussions about their expectations and concerns early on in the project, you'll get a feel for which project constraints they'll want to focus on. There's usually a risk/reward balance in any organization, and an underlying culture in the willingness to accept or manage risk.
Some entrepreneurial organizations will take significant risk, whereas more conservative industries will want to mitigate their risk, and they'll expect you, as a project manager, to conform to their style. The techniques I've discussed here can position you well to understand how you need to proceed, relative to project risk. The more you understand your organization's position on risk, the better you'll be able to successfully focus your risk management efforts, and prioritize risk activities.
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- Incorporating risk management into your project
- Identifying risk
- Categorizing risks
- Performing qualitative and quantitative risk analysis
- Building a risk-response plan
- Deciding when to execute a risk-response plan<br><br>
- The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.