How Risk Attitude Influences Risk Model Inputs & How to Overcome Bias

This short article will explore the concept of risk attitude and how this relates to the quality of risk model inputs. The context of this article is the development of a risk model in a project setting.

Risk attitude is defined as “a chosen response to uncertainty, defined by perception.”[1] Risk attitude exists on a continuous spectrum, driven by several factors; an individual’s risk attitude drives their behaviour and decision-making (with differing attitudes resulting in differing behaviours and decisions). Our risk attitude is often a sub-conscious influence, and it’s common for people to believe that they are inherently risk-seeking or risk-averse. The good news is this isn’t the case, and it is possible for us to adopt a different attitude; and, in fact, it’s important that we challenge our own risk attitude, and that of the team contributing to our risk model inputs.

Risk attitude, driven by perception, is both personal and situational: not everyone thinks the same, and you don’t think the same in every situation. There are three factors that drive risk attitude, The Triple Strand[2]:

-?????????Affective Factors

-?????????Conscious Factors

-?????????Sub-conscious Factors

We must be aware of how each of these factors influences the risks we identify, how we assess them, and how we choose to respond to them. We must also consider the risk attitude and appetite of the organisation and adapt as necessary.

Top tip: Later in this article is a table which includes a brief description of some common effects along with some techniques to combat their influence.

?Notwithstanding current digital and technological trends in the world of Risk Management, it is so important for a Risk professional/ workshop facilitator to have an understanding of people, personalities, behaviour, and the potential influence of biases. There are instances where an external facilitator is justified, however, there’s an advantage if the facilitator is someone who is embedded within the project team. Personally, for QRA development, I see this as an ongoing, standard part of Risk Management delivery rather than a standalone piece of work. Therefore, challenging the data should be a continuous, refinement process. The benefit to having an embedded Risk professional is that they have an opportunity to get to know the project, the team and their background, personalities and typical risk attitude.

Taking a fictional Project Manager for our project; let’s say they’re typically a straight-talking, get-to-the-point kind of person. They like to get into the meeting, get through the agenda and move onto the next meeting. They’re relatively new to the organisation, and to the sector but have 15 years’ experience working on small, less complex projects.

These factors could manifest themselves in a variety of different ways; the list below identifies some of the possible considerations:

1.??????will they allow sufficient time for meaningful dialogue with the wider project team in relation to what risks might arise and how they might be assessed?

2.??????will they talk over everyone, giving their own opinion and want to move onto the next item quickly leaving little room for debate and alternative views?

3.??????with little direct experience in the sector, might their judgement be clouded by their past and most recent projects rather than giving this particular project an objective assessment?

There are a few ways that this particular person could influence our risk inputs, including the possibility that:

1.??????They may not allow other team members to be heard. For example, through talking over/ shouting them down, leading to a single (their) view of the world (risks);

2.??????They could create an environment where people don’t want to offer up their views, leading to a narrow perspective, potentially missing vital information as well as reduced buy-in to the risk process from the wider group;

3.??????Risk assessments influenced by one individual’s perception and relative (in)experience rather than taking account of multiple views.

This is an example of how just one person can potentially influence risk inputs and, therefore, outputs. During the earlier stages of the modelling process, it’s important to be cognisant of how these factors (situational, affective, conscious, and subconscious) can be at play in a project setting. The table below is a mini guide, detailing some common bias/ heuristics along with a brief description and some tips for countering their effect.

In summary, building on the previous article in this series which considered the importance of risk description, this thought piece has attempted to dive a little deeper into the behavioural side of risk and, particularly, how this relates to identifying, describing and assessing project risks. Through remaining cognisant of these influences, the inputs to a model can be made more robust resulting in more meaningful and representative information on which to make more effective decisions.

References

[1] Hillson, D. & Murray-Webster, R. (2006). Managing risk attitude using emotional literacy. Paper presented at PMI? Global Congress 2006—EMEA, Madrid, Spain. Newtown Square, PA: Project Management Institute.

[2] Hillson and Murray-Webster, 2008. Managing Group Risk Attitude (Gower Publications)