Risk management and the concept of risk have been around for a long time. However, it wasn’t until relatively recently that they have really been applied to project management. In this article, we will take a look at the psychology of risk perception within project teams and consider how it affects individuals’ attitudes to project risk management.
What is risk?
Throughout our daily life there are many things that we may come across that could be considered to be a risk. This may occur in a medical setting, with a doctor informing you about the risk factors associated with a particular medication or a medical condition. Or it could be as a result of an insurer conducting a risk assessment in order to determine what level of coverage they can offer. And project managers and their project team continually find themselves considering risks within their projects.
In the project profession, the risks that we find ourselves facing are sometimes controlled risks, and sometimes uncontrolled ones. When it comes to controlled risks, we can choose just how much risk we want to expose ourselves to. For example, if we choose to take part in a sport, we can wear a helmet to lessen the risks that we might be injured. Uncontrollable risks, on the other hand, are very different. In the above sport analogy, whilst a helmet will protect us to some extent it cannot protect against all of the risks involved; these are the uncontrollable elements.
People who find themselves confronted by risk in general prefer to avoid it, or at least the more extreme forms of it. There are, of course, exceptions to this, for example those who live for the adrenaline rush that putting themselves in a possible position of risk can bring.
Is it all about risk perception?
Perception of risk varies, not just from one risk to the next, but also from person to person, and this can often result in us coming to the wrong conclusion about the level of risk. Faced with two different risks, one of which is more serious than the other, some people’s perception will be that risk one is the most concerning whilst others in the same team will fear risk two. In many ways, how different people perceive different risks is down to how they process the information that they are given.
When it comes to risks and the probabilities associated with them, people’s behaviour is based on how the risk scenario is presented to them rather than on a factual evaluation of the risk.
In a project team, the experience that individuals have, whether it is based on their experience on previous projects or, indeed, external life experiences, will shape how they perceive a risk.
Old vs New Risks – Experience vs New Thinking – What is the “best bet”?
A problem that has previously been encountered, whilst it may not be completely the same, could be perceived to be less risky than a completely new issue that nobody has tackled before. This may not, however, be the case in reality. The previously tackled problem may have been very risky and only resolved due to the skills and tenacity of the project team, but because it has a sense of familiarity about it, it will be seen as less of a threat.
Someone with little previous experience of risk in projects will have a very different view from more experienced team members. However, this is not a weakness within a project team but rather a strength. A project team is made up of a range of people, all of whom bring their own individual and unique talents and skills to the table. These are the skills that help them find solutions to problems and impact how they perceive different risks.
Daniel Bernoulli, the Swiss mathematician and physicist, hypothesised in 1738 the “best bet” is the one which seeks to maximise the expected utility of a decision. His theory offers a basis for making the best decisions when risk is involved in a situation. It also indicates that when faced with risky decisions it is not always possible to make those choices that will turn out to be the best in every situation. These decisions are “gambles” and the decisions made are the “best bet” as determined by a group of people with the knowledge and experience to make the best decisions given all the unique circumstances.
How can project managers foster a healthy risk culture?
It is the responsibility of the project manager to ensure that there is a healthy risk culture present within their project team. This can be a difficult task, but providing risk management tips and advice can help to keep the project team on an even keel.
The key to any successful project is to have strong and open lines of communication. When team members communicate with each other, even when this is to pinpoint potential risks then it can make finding solutions to such risks much easier.
All decisions must be considered with risk in mind, prior to any formal decisions being made. This may involve the entire team sitting down and discussing the risks, and the impact that they might have on the project. The project manager should also ensure that responsibility is taken for any risks on the project and also the controls that need to be put in place to deal with them.
Taking ownership of risk can be difficult but is also a necessary step in the process of fostering a healthy risk culture.
When a project team works together, the risks that they encounter can seem smaller, the pool of skills and experience that can be drawn on to help counter the risk are the project manager’s greatest tools and, if they are correctly used, risk can become easier to deal with.