The Relationship between Risk Management and Stakeholder Management


1.   Introduction

I have the pleasure of working with Mark Wilson from the Dale Carnegie Institute in Chicago, who is preparing for a presentation to be given by the PMI-Chicagoland chapter’s Professional Development Day event on November 1st.    As we were discussing his proposal for a presentation, we were talking about the general analysis of stakeholders into four main categories based on the combination of two variables, a) their interest in the project, and b) their power or influence on the project.    This analysis is done as part of the first stakeholder management process 13.1 Identify Stakeholders after all the stakeholders have been identified.    Here are the four possibilities that emerge from this analysis:

This is a very gross simplification of these four strategies, but you can get the general picture from the diagram above.   When Mark looked at that, he said the diagram reminded him of the diagram which analyzes the four main risk response strategies, something that is done in the process 11.3 Perform Qualitative Risk Analysis.

There the analysis is done based on, again, the intersection of two variables, but there the variables are a) probability of an event occurring, and b) the impact of the event when it occurs.    Now that event can have a positive (+) or a negative (-) impact, in which case the strategies are diametrically opposite.   For example, if the probability is high and the impact is high, you want to avoid it if it’s going to have a negative impact, but you want to exploit it if it’s going to have a positive impact.

Here’s a matrix which outlines the four strategies based on these two variables.

Probability Impact Strategy (-) Strategy (+)
High High Avoid Exploit
Low High Transfer Share
High Low Mitigate Enhance
Low Low Accept Accept

This observation of Mark Wilson’s, that the structure of the analysis of risk response strategies and stakeholder engagement strategies are similar, made me think, is there any deeper structural connection between risk management and stakeholder management?     That is the subject of this post.

2.  Similarities in objectives

One of the ways to see the structural links between risk management and stakeholder management is to look at the definitions based on the PMBOK Guide.    The definition of risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives.   The definition of a stakeholder is an individual, group, or organization who may [positively or negatively] affect, or be affected by, the outcome of a project.    I confess that I added the phrase “positively or negatively” to make it clear that the definitions are parallel.   In the case of risk, therefore, an event may affect the project either positively or negatively; in the case of a stakeholder, a person may affect the project either positively or negatively.

But if you are concerned about the outcome of your project, you need to be concerned about BOTH of these possible impacts on your project.    Now people are not things or events, and you need to approach them differently.   For example, you cannot “avoid” or “transfer” a stakeholder that has a potentially negative impact on your project in the same way you could handle a risk that has a potentially negative impact on your project.    But you could draw parallels with some of the other risk response strategies and stakeholder engagement strategies, like that of mitigating negative risks/stakeholders or enhancing positive risks/stakeholders.

3.  Similarities in management approach

The project management institute, in the last edition of the PMBOK Guide, seems to trying to change the paradigm of project managers from dealing with risks that are occurring now through corrective actions to dealing with risks that may occur in the future through preventive actions.    In a similar way, it seems like in the new 5th Edition of the PMBOK Guide, PMI is trying to shift the paradigm of stakeholder engagement from corrective actions to preventive actions by a) creating stakeholder management as its own knowledge area (it used to be subsumed under communications management) and b) moving stakeholder management to top priority, along with the creation of the project charter, as part of the initiating process before detailed planning on the project even starts to take place.

4.  Similarities in patterns of analysis

The analysis of risk in the risk management knowledge area goes from the macro level (11.3 Perform Qualitative Risk Analysis), where the risks are analyzed in terms of  general categories of risk responses, to the micro level (11.4 Perform Quantitative Risk Analysis), where each individual risk is analyzed, and a response generated (11.6 Plan Risk Responses).    In a similar way, in the stakeholder management area, the analysis of stakeholders and their levels of engagement go from the macro level (13.1 Identify Stakeholders), where the general category of stakeholder engagement response is analyzed, to the micro level (13.2 Plan Stakeholder Management), where the current and desired engagement level of each individual stakeholder is analyzed, and a strategy generated (put in the Stakeholder Management Plan).

5.   Differences between Risk Management and Stakeholder Management

For all the similarities between risk management and stakeholder management, in objectives, approach, and patterns of analysis, the big difference between them is that stakeholder management deals with people rather than events that could impact a project.    Because of this, stakeholder management requires interpersonal skills of communication and influencing people that risk management does not.    That, in fact, is why I am excited to have someone from the Dale Carnegie Institute, which excels in the training of just those types of interpersonal skills (among others), talk about Stakeholder Management because I’m sure he will bring a lot of useful tools to the table, so to speak.

Because we are dealing with people rather than events, there is the opportunity with stakeholder management that you don’t have in risk management; you can influence them so that you can turn a negative stakeholder into a positive stakeholder, whereas you have much less ability to influence events.    You can prepare for a rainy day, but you can’t make it shine rather than rain.    However, if some stakeholder is figuratively “raining on your parade”, there are ways to bring that stakeholder around.    The unpredictability of human behavior is the daunting aspect of stakeholder management, but that very pliability of human behavior is also its most challenging aspect, one that a project manager must learn to master if he or she is to guarantee the success of a project.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: