Tuesday, November 15, 2016

PMP Protein: Understanding Risk Attitude

By Sindhu Sreenath, PMP




Risk attitude is an important concept in risk management. While taking the PMP® exam, you may expect questions on risk attitude and associated terms. Here, I’ll take an example on changing roles or jobs and relate it to the terms associated with risk attitude. 


Through the course of our career, inevitably there comes a cross-section in our pathway requiring a choice in changing roles or jobs to pursue different goals and aspirations. The need to make this swap can be influenced by a number of factors such as the quality of work, the capacity of the deliverable(s), responsibility, pay, reputation and many other individually driven intangibles. But with each change we are faced with foreseeable and unforeseeable risks that can result in better opportunities or greater threats to existing responsibilities. Applying the concepts of risk management is imperative even though we do not realize that we do. And prior to our assessment it is important to understand the attitude we possess in our appetite for a new role, how much change we can tolerate and what threshold we are willing to withstand. Let's analyze each through examples associated with the constraints.

Risk attitude of a stakeholder is impacted by many factors and as per PMBOK® Guide 5th edition, it is broadly classified into three themes – Risk Appetite, Risk Tolerance, and Risk Threshold. 



Risk Appetite: It is the degree of uncertainty a stakeholder is willing to take in expectation of a reward. In the light of changing roles or jobs, risk appetite can be defined by the need or desire for betterment in the workplace or career ladder, taking into account certain level or degree of uncertainty.
Example: You are willing to take up a new job that gives you more responsibility (the award) but might require you to work longer hours (the risk) due to meetings with team members located in different geographical locations.

Risk Tolerance: It describes the degree of uncertainty a stakeholder can withstand or tolerate. The differences between appetite and tolerance is that - tolerance will set a limit. In other words, compared to risk appetite, risk tolerance is more specific and measurable.
Example: You are willing to take up a new job that gives you more responsibility (the award) but might require you to work around 50 hours/week (the risk tolerance) due to meetings with team members located in different geographical locations.

Risk Threshold: It is the measure of risk exposure above which the stakeholder won’t accept the risk. It defines the stakeholder’s view on acceptable levels of risks. In other words, you can say, risk threshold is the highest level of risk tolerance. Below the risk threshold, the stakeholder will accept the risk, but above risk threshold, the stakeholder won’t accept the risk.  In the context of changing roles or jobs, it will denominate the point until which certain factors regarding role or job selection are acceptable. Beyond this point, you won’t consider them.
Example: You are willing to take up a new job that gives you more responsibility (the award) but might require you to work longer hours (the risk) due to meetings with team members located in different geographical locations. You are willing to stretch yourself to a maximum of 50 hours/week (threshold).

Now, are you wondering where in project management these are listed? These will be part of the risk management plan, which you create as part of your planning. The risk appetite, tolerance and threshold may be revised as they are applicable to your project. 

In your projects, you need to understand the stakeholders’ attitudes toward risks before you proceed with risk analysis and risk response planning. These parameters are also many times known as risk governance parameters

Written by Sindhu Sreenath

Sindhu Sreenath is an IT Professional & Product Technologist working with Intel Corporation, India as a Program Manager. She is a certified PMP from Project Management Institute (PMI). She has been applying Project and Program practices for over 4 years on managing Product Enabling teams and is now keen on developing her IT Product management skills. She has represented India in Rugby and has played Basketball and did Athletics for her state, at national level. In her spare time she enjoys Travel, Videography, Fitness and sports and is involved in several community and volunteering activities.She can be reached at Sindhu.sreenaths@gmail.com and her travel account can be accessed on Facebook or Instagram.

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