Ideas with Paul Kennedy is a show put on by CBC Radio, and in mid-September they aired a two-part series on risk. The first part of the series focuses on how decisions are made based on the individual’s perception of risk, relative to perceived benefits derived from taking the risk. In particular, the episode focuses on the works of Paul Slovic, founder and president of Decision Research and a professor of psychology at the University of Oregon.
Slovic is a leading researcher in the field of risk perception, and more specifically, how human beings tend to rely on impulsive visceral reaction, or feelings, when making decisions about taking risk, than the analytical data associated with the risk. This concept is better illustrated by looking at the graph attached.
The graph is a psychometric plot of various hazards and illustrates the public’s perception of these hazards based on two criteria—how much they dread the hazard and how familiar they are with the hazard. You can see the public is much more willing to take risks, based on their perceptions, which fall within the lower left hand quadrant (known and low dread). Whereas the risks in the upper right hand quadrant (unknown and high dread) are not risks the public will likely take on.
What is interesting, is when you plot the same hazards using the perceptions of risk from a group of experts, the results are very different. The experts see the hazards as being much lower based on their extensive experience and their significant time spent analyzing the risk. Their perception is founded on analytical studies of the hazard, versus their initial visceral reactions. The public often does not invest the time to understand the true nature of a hazard, so they are fuelled by their perception of risk from very short, sometimes shocking, memories of risk.
A recent example of this is the risk of “stranger danger.” These days, parents tend to keep their children indoors for fear of strangers abducting them when they are out on the streets by themselves. Are parents making these decisions based on evidence, or are they exposed to more shocking stories about child abductions than previous generations? Abduction statistics are not on the rise; so the public’s perception of risk is not aligned with reality when it comes to this hazard.
Slovic’s work clearly illustrates effective communication of risk to third parties that are not as familiar with the risk is vital to obtain best terms from those parties. To relate this to the construction industry, we have several stakeholders involved in every project. The initial stakeholder is the owner, or the supplier of the equity. The equity reaches out to design and construction partners and in parallel the owner, depending on the structure of the project’s financing, will reach out to debt partners. Furthermore, the contractor (and sometimes the equity and/or design) will reach out to subcontractors and suppliers. Finally, once the project is near completion, the equity will reach out to operations contractors, subcontractors and suppliers (either their own forces or outsourced). Each of these stakeholders has a perception of the risks associated with the project. If that perception is guided by lack of experience and analysis, your project will likely cost more to execute or could even be prevented from moving forward.
You must find ways to more effectively communicate your project’s risks to all stakeholders. This means having a sound methodology for assessing and treating risk; including understanding key risks facing your project and having extensive knowledge of all available treatments or solutions. Only by employing a full arsenal of risk management solutions can you be assured your project is carried out most efficiently.
David Bowcott is senior vice-president, national director of large/strategic accounts, AON Reed Stenhouse Inc.
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