Week 5 Discussion – Perceptions of Risk

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Please respond to the following:

• Using the information presented in Practical Project Risk Management  in Figure 6-3, “Common Influences on Risk Perception,” determine the  conscious factors, subconscious factors, and affective factors for this  project. Examine how awareness of such factors influences the decision  to hire outside vendors. In addition, analyze how the stated factors  help improve the overall facilitation and effectiveness of the risk  management.

Be sure to respond to at least one of your classmates’ posts.

Cynthia Condiff         

Yesterday Aug 4 at 7:55pm          

Risk Perception 

Examination of how awareness of Potential Risks Influences the decision to Hire Outside Vendors

   The awareness of risk factors, especially conscious, subconscious and  affective issues, can significantly influence the decision to hire  external vendors or employees when planning to undertake a new project  (1, Hillson)

Conscious Factors 

   The conscious factors include knowledge and expertise, risk tolerance  and appetite, and cost-benefit analysis. Knowledge and expertise are  vital when conducting a new project since it enables an organization to  assess whether they have the in-house expertise and capabilities to  handle certain phases in a project (1, Hillson). For instance, if a  company is looking to introduce a new blockchain-based system, they must  consider the availability of that expertise in the organization,  prompting the decision to hire outside vendors.

   Another conscious factor entails risk tolerance and appetite before  hiring outside vendors. A company that is not ready or incapable of  handling certain risks must hire experienced employees who have worked  on the same project before. A low-risk tolerance means that a company  must hire experienced and qualified vendors to ensure that it is  successful (1, Hillson). Additionally, cost-benefit analysis is vital as  a trade-off of hiring external expertise while considering vital issues  such as budget constraints, timelines and project complexity.

Subconscious Factors 

   Some subconscious factors include availability heuristic, anchoring  effect, and social influence. The availability heuristic factor  significantly influences the decision to hire outside vendors since they  might focus on examples of recently successful or unsuccessful  projects. Also, the first piece of information encountered regarding  potential vendors is another anchor regarding the decision to hire  external employees in project management (1, Hillson). Another factor  entails the subconscious cues from industrial norms that can impact the  decision. The perceived failure or success of competitors’ projects,  especially after hiring external vendors, is another factor that can  influence this decision.

Affective Factors 

   Some affective factors include emotional response to risk, intuition,  which is commonly known as gut feeling, level of confidence and trust,  and well as regret avoidance. Risk managers also consider their  intuition and level of confidence in outside vendors when deciding  whether to hire them. If they have a negative intuition, then the  chances of hiring outside vendors could be higher in project management.  Another important affective factor entails regret avoidance, which  every project manager and involved company seeks. Regret in project  management means that it has failed, or not met the project goals and  objectives. Therefore, affective factors are also key with regards to  risk management and project management.

How the stated Factors contribute to the overall Facilitation and Effectiveness of Risk Management

   First, the stated factors enable comprehensive risk assessment,  especially the conscious factors such as assessment of knowledge,  expertise, and cost-benefit analysis. When project managers consider  these factors, they can effectively identify potential risks associated  with a certain project while hiring external help. This factor enables  them to make informed decisions that align with the organization’s risk  appetite and goals.

   Second, being aware of the risk factors, such as subconscious factors  like the availability of heuristic effects, allows decision-makers in  project management to mitigate potential cognitive biases consciously.  Awareness of these potential risks enables decision-makers to actively  gather diverse perspectives, challenge current assumptions/stereotypes,  and avoid relying on biased information. Therefore, they can make the  right risk management decisions since they will rely on objective  assessment of potential risks. Thus, decision-makers can also boost the  probability of success in project management once they adopt this  strategy.

Reference:

1. David Hillson. Practical Project Risk Management: The ATOM Methodology. Vol Second edition. Berrett-Koehler Publishers; 2012.

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