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.
2. 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 Types
Geoff Trickey & Grace Walsh
Psychological Consultancy Ltd.
3. 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 overlooked
Geoff Trickey & Grace Walsh
Psychological Consultancy Ltd.
4. 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 Walsh
Psychological Consultancy Ltd.
5. 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 decisionmaking
Geoff Trickey & Grace Walsh
Psychological Consultancy Ltd.
6. Risk & Personality
• The significance of FFM
• Defining the domain
• Consensus at last
• Consistent over working life
• Deeply rooted
Geoff Trickey & Grace Walsh
Psychological Consultancy Ltd.
7. 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 Walsh
Psychological Consultancy Ltd.
8. 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 Walsh
Psychological Consultancy Ltd.
9. 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 Walsh
Psychological Consultancy Ltd.
10. 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 Walsh
Psychological Consultancy Ltd.
11. 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 Walsh
Psychological Consultancy Ltd.
15. 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 Approximate
Geoff Trickey & Grace Walsh
Psychological Consultancy Ltd.
17. 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% Typical
Geoff Trickey & Grace Walsh
Psychological Consultancy Ltd.
18. 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 Walsh
Psychological Consultancy Ltd.
20. 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 Walsh
Psychological Consultancy Ltd.
40. Individual Level Applications
• Selection
• Re-deployment
• Personal development
• Advising in financial services
Geoff Trickey & Grace Walsh
Psychological Consultancy Ltd.
41. 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-making
Geoff Trickey & Grace Walsh
Psychological Consultancy Ltd.
42. Organisational Level Applications
The Risk-Type Compass® in survey
mode:
The Risk culture
The Risk landscape
Geoff Trickey & Grace Walsh
Psychological Consultancy Ltd.
43. The Company Risk Landscape
SALES
RTi 96
PROMO
EXEC I
THE BOARD EXEC II
ACCOUNTS
& EXCO
HR
FINANCE
RISK &
COMPLIANCE
Rec
L&D
Geoff Trickey & Grace Walsh
Psychological Consultancy Ltd.
44. Risk and Compliance Team
Geoff Trickey & Grace Walsh
Psychological Consultancy Ltd.
47. 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 Walsh
Psychological Consultancy Ltd.
48. THE END
Tel: +44 (0) 1892 559540
Email:
geoff@psychological-
consultancy.com
Geoff Trickey & Grace Walsh
Psychological Consultancy Ltd.