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Book Review: Understanding and Managing Risk Attitude by David Hillson and Ruth Murray-Webster

This book goes beyond managing ‘risk’, to consider managing ‘risk attitude’ - the beliefs and strategies that people hold towards risk. In order to do that the first few chapters have to consider basic risk management and then move on to the more psychological aspects of attitude.

( amazon.co.uk | amazon.com )

The authors define two categories of uncertainty about the future:

  • Variability - something will happen on a defined scale but the actual value on the scale, we do not know
  • Ambiguity - uncertainty of meaning: will an event happen or not? Will something else happen? Incomplete knowledge.

Risk relates to uncertainty, and it has consequences. It has consequences because it relates to objectives. Risk includes both threats and opportunities.

Our perception of risk relates to our attitude to risk. The authors describe perception as a key driver of attitude. But I find it equally valid to consider attitude a key component of how we perceive risk. Regardless, the authors suggest that understanding our attitude to risk helps us manage risk because:

  • we become more aware of our perceptual biases
  • we can change our attitude to allow us to manage risk differently

The authors describe a simple risk management process as:

  • initiate process - agree objectives and level of detail required for the risk reporting
  • identify the risks
  • assess the significance of the risk (qualitatively or quantitatively)
  • plan responses to deal with risks
  • implement the planned responses and monitor effectiveness of the actions
  • review and update the risks

The authors then go on to discuss attitudes to risk:

  • risk-averse
  • risk-tolerant
  • risk-neutral
  • risk-seeking

Attitudes change over time: based on skills and knowledge, perception of impact and probability, perception of ability to control the risk, closeness of the risk occuring, perception of the conequences.

The book starts to get psychological by discussing biases (or heuristics) that people have related to risk perception:

Group think and biases related to group behaviour then get an airing as the authors discuss how risk attitudes change when people work in groups:

  • Groupthink,
  • Moses Factor - where an individual dominates
  • Cultural conformity - decisions based on organizational norms rather than reality
  • Risky Shift - where a group becomes more ‘risk-seeking’ than the individual members
  • Cautious Shift - where the group becomes more risk-averse

Wikipedia lists a lot of cognitive biases which also have a bearing on risk attitude.

Emotional Intelligence gets a thorough promotion for a few chapters with the basic theme that if people learned how to control their emotions, perceive others emotions and communicate their emotions then we could perceive/manage/overcome more biases than we currently do. Transactional Analysis, NLP also get a mention in this section.

Unfortunately at this point the books starts leaning towards a consultancy sales pitch where you might want to get some training to improve this aspect of your organisation.

I enjoyed the first half of the book, but it became slightly less practical as it went on. I did feel a tad ’sales pitched’ towards the end and I would have preferred an annotated bibliography that pulled out a few of the most important references rather than a big lump of 4 or 5 pages of stuff.

Still - a very easy to read book which did not make risk management boring, and which emphasised the importance that beliefs and attitudes have on risk management. An enormously important point which doesn’t really get communicated too often in book form.

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This entry was posted on Tuesday, February 24th, 2009 at 11:47 pm and is filed under Books. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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