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Managing Risk- The Human Factor
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Managing Risk- The Human Factor

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The focus of risk management has been almost exclusively on the nature of the risk itself: procedures, regulation and legislation. Organisational risk, compliance and governance strategies have had ...

The focus of risk management has been almost exclusively on the nature of the risk itself: procedures, regulation and legislation. Organisational risk, compliance and governance strategies have had difficulty in getting to grips with the human factor - the risk dispositions of the individuals involved and their contribution to the risk equation. With recently published papers, including the IRM’s ‘Risk Culture’ piece, the importance of considering and managing ‘human factors’ is beginning to be realised and considered as part of a comprehensive risk strategy.

The following is an introduction to human factor risk, the theory behind this approach, why personality can hold the key and how this knowledge can be applied at the individual, team and corporate level.

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    Managing Risk- The Human Factor Managing Risk- The Human Factor Presentation Transcript

    • Human Factor Risk "Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • The Risk-Type Compass® •  Personality tool •  Explores an individual’s –  predisposition to risk –  capacity to manage risk –  decision making •  Based on globally validated research •  Assigns people to one of eight Risk TypesGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Original Development •  Developed to advise clients on investments •  FSA requirement to assess client’s propensity towards risk •  Incorrect measures of risk tolerance may have contributed to financial crisis (Sjoberg & Engelberg, 2009) •  Personality based measures of risk tolerance previously overlookedGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Parallel Assessment Universe Human Factor Risk Assessment has been: 1.  Based on a ‘snap shot’ of attitudes 2.  Varied approaches with no consensus 3.  Muddled and inconsistent Content: temperament? situation? circumstances? Methodology: definitions? models? taxonomies? Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • The Importance of Personality •  Personality questionnaires tap into: –  Innate levels of fear and anxiety –  Need for predictability –  Impulsivity –  Desire for excitement •  Deeply rooted ‘dispositions’ •  Stable basis for decisionmakingGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Risk & Personality •  The significance of FFM •  Defining the domain •  Consensus at last •  Consistent over working life •  Deeply rooted Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • The Five Factor Model •  Higher extraversion is associated with higher risk tolerance (Pan and Statman, 2009) •  Why? –  Extraverts need stimulation (Eysenck, 1973) –  Sensation seeking aspect is a strong predictor of risk tolerance (Harlow and Brown, 1990) Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • The Five Factor Model •  High conscientiousness is significantly associated with having a lower risk tolerance (Pan and Statman, 2009) •  Why? –  Need conformity and control (Hogan and Ones, 1997) –  Less tolerant of uncertainty, change and innovation (Nicholson et al., 2005) –  Individuals that are hasty, impulsive, careless and impatient are more likely to want to take risks than those without these characteristics (Kowert, 1997)Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • The Five Factor Model •  High scorers on neuroticism are significantly related to having lower risk tolerance (Nicholson et al., 2005) •  Why? –  Less resilient (Nicholson et al., 2005) –  Focus more on threats (Eysenck, 1992) –  Interpret ambiguous stimuli as more threatening (MacCleod & Cohen, 1993) –  High fear of failure (Elliot & McGregor, 1999)Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • The Five Factor Model •  Higher scores on openness to experience are significantly associated with having a high risk tolerance (Hunter and Kemp, 2004) •  Why? –  More tolerant of uncertainty and change (McCrae and Costa, 1997) –  More adventurous and imaginative –  Search for new experiences and actively seek out risk (Kowert, 1997)Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • The Five Factor Model •  Agreeability -The least predictive area of personality for risk •  Only two studies have found significant relationships •  Highly agreeable individuals fear the harm that could come to others through their own risky behaviour (Kowert, 1997)Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Extracting the Risk Elements RISK RELATED THEMES •  Adventurous •  Forgiving •  Apprehensive •  Impulsive •  Attachment •  Methodical •  Careless •  Optimistic •  Compliant •  Patient •  Confident •  Perfectionist •  Conforming •  Reckless •  Deliberate •  Resilient •  Emotional decision making •  Sentimental •  Excitement seeking •  Spontaneous •  Focused •  TrustingGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Subtheme Factor AnalysisGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Four ‘pure’ Risk Types…….Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Two Influences on Risk-Taking Fear: Impulsivity: Nervous vs Fearless Prudent vs Carefree Apprehensive vs Relaxed Compliant vs Challenging Brittle vs Flexible Consistent vs Unpredictable Pessimistic vs Optimistic Detailed vs Vague Vulnerable vs Daring Planned vs Impulsive Stressed vs Calm Organised vs ApproximateGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • The Risk-Type Compass® •  Eight Risk Types •  Continuous spectrum –  Adjacent Risk Types similar –  Facing Risk Types opposites •  Markers (•) for extreme types are placed at the outer edge, moderate types near the centre •  Central 10% TypicalGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Eight Risk Types •  SPONTANEOUS •  DELIBERATE Uninhibited, excitable, unpredictable and Imperturbable, confident and systematic distraught when things go wrong. they are fearless and well unprepared. •  INTENSE •  COMPOSED Enthusiastic and committed, but pessimistic Calm, cool headed and optimistic they and easily defeated by set-backs. seeming oblivious to risk. •  WARY •  ADVENTUROUS Well organised but, anxious and fearful of Calm and unemotional but impulsive, failure they passionately seek to control. daring and up for any challenge. •  PRUDENT •  CAREFREE Cautious, self-controlled and most Unconventional and excitement seeking, comfortable with continuity and familiarity. their imprudence makes life exciting.Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Prevalence of Risk TypesGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Risk Attitude –variable •  R-TC also recognises the significance of risk attitudes •  Influenced by experience, training, current climate or personal circumstances •  Focuses on five key domains addressed by research –  Financial, health & safety, recreational, ethical and social (Weber et al., 2002; Blais and Weber, 2006)Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Risk AttitudesGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Type & Attitude RISK ATTITUDE RISK TYPEGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Risk-Type Compass® Model •  Measure of Personality – Risk Type •  Measure of Attitude – Risk Attitude •  Measure of Tolerance – Risk Tolerance IndexGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Risk Tolerance Index (RTi)Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Quality of MeasurementGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • ReliabilityGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Calm – Emotional (Fear)Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Daring – Measured (Impulsivity)Geoff Trickey & Grace WalshPsychological Consultancy Ltd.   28  
    • Validity Studies •  Risk-Type Compass® & Profile:MATCH® (Stewart, 2011)Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Validity Studies •  Risk-Type Compass® & the Hogan Personality Inventory (Stewart, 2011)Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Validity Studies •  Risk and Creativity (Cichomska, 2010) Used the Creative Personality Scale (Gough, 1979) Positive correlation between creativity and risk toleranceGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Validity Studies •  Risk and Security (Gordon, 2010) Need for Security negatively associated with Risk Tolerance IndexGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Our IT SampleGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Our Engineer SampleGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Our Recruiter SampleGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Our Auditor SampleGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Differentiation    IT PROFESSIONALS RECRUITERS ENGINEERS AUDITORSGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Gender Differences Risk  Types  of  males  and  females   Males  n=843,  Females  n=656   20   18   16   14   Percentage  of  sample   12   10   Male   8   Female   6   4   2   0   Wary   Prudent   Deliberate   Composed   Adventurous   Carefree   Spontaneous   Intense   Risk  Type  Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Spheres of Application Include: •  Project Management •  Certification •  Risk Management •  Financial Planning •  Compliance •  Team Building •  Underwriting •  Risk Landscape •  Coaching •  Risk CultureGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Individual Level Applications •  Selection •  Re-deployment •  Personal development •  Advising in financial servicesGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Team Level Applications •  Reveal the team composition - Who is Who? •  Clarify team dynamics •  Increase cohesion and effectiveness •  Raise team-awareness of propensity for risk •  …and awareness of others •  Balance risk taking tendencies •  Enhance decision-makingGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Organisational Level Applications The Risk-Type Compass® in survey mode: The Risk culture The Risk landscapeGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • The Company Risk Landscape SALES RTi 96 PROMO EXEC I THE BOARD EXEC II ACCOUNTS & EXCO HR FINANCE RISK & COMPLIANCE Rec L&DGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Risk and Compliance TeamGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Individual Summary"Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Risk Culture ModelingGeoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • Positive Risk Management •  The world needs risk takers: •  Entrepreneurs •  Creatives •  Sales people •  Heroes •  Challengers of the status quo •  Enron vs Kodak – two ways to fail •  Risk Culture & Friendly Fire •  Manage for more risk as well as for less?Geoff Trickey & Grace WalshPsychological Consultancy Ltd.  
    • THE END Tel: +44 (0) 1892 559540 Email: geoff@psychological- consultancy.comGeoff Trickey & Grace WalshPsychological Consultancy Ltd.