Risk Training - the Neglected Part of Project Management - Essay Example

Management Risk Analysis Introduction In own risk analysis one should have wide perspective when interpreting his or her own risk tolerance. People analyze risk differently relative to their inherent circumstances. Risk analysis is one of the most vital operations that help to safeguard business operations (Jarrett, 2000). Individuals should realize that every investment decision has a risk factor. Understanding every risk associated with the preferred investment idea should be the first priority of individual investors (Kahneman & Lovallo, 2000). Risk analysis helps individuals to identify potential hazards that may face in their investment projects. Potential investors are advised to employ stochastic techniques to identify the likelihood and severity of the inherent risk (Jarrett, 2000). Own risk tolerance Individual level of risk tolerance may be exhibited in almost every aspect of one’s investment (Kahneman, Lovallo & Sibony, 2011). This is becouse both employers and individual tend to have different perceptions on risk tolerance. For example, I may view investing $25,000 in the stock market as wise decision depending on my level risk tolerance, while another investor may shun this investment decision because his or her level of risk tolerance may be substantially low as compared to mine. Connectively, if $25,000 represents a considerable fraction of my persons’ income, I may encounter a high risk factor. On the contrary, if $25,000 constitutes only 10% of the total income, the risk factor will be negligible (Vaz-Oxlade, 2011). Many investors’ view stock market as a risky venture due to volatility and fluctuation of the stock prices as well as the economic conditions. Therefore, such volatility in stock prices may make both individual to vary interims of their levels of risk tolerance (Jarrett, 2000). Usually, individuals tend to underestimate or overestimate severity of inherent risk that may consequently expose them to an intolerable risk levels (Kahneman, Lovallo & Sibony, 2011). Therefore, it is vital for individuals to understand inherent risk is an intangible factor and hence apply an appropriate technique to determine their levels of risk tolerance (Kahneman, Lovallo & Sibony, 2011). For instance questionnaires may be developed to help individuals determine their levels of risk tolerance (Kahneman, Lovallo & Sibony, 2011). There are several factors that influence the levels of risk tolerance some of those factors include; persons health, age and the likelihood of recovering from financial distresses (Jarrett, 2000). Research indicates that,olderly population are susceptible to maintain higher levels of risk tolerance relatyive to young people. For example, a young and unmarried person may not invest the same way as a married couple becouse their level of risk torelance vary (Jarrett, 2000). Additionally, healthy and physically fit individuals maintain lower risk tolerance levels than their ailing counterparts (Jarrett, 2000). In above connection, a person with a likelihood of recovering from a financial distress displays low risk tolerance levels than the incapacitated one (Jarrett, 2000). Additionally, the long term investment goals of an individual may determines his or her risk tolerance levels. For example, a situation where an individual long term investment goal is retirement benefits his or her level of risk tolerance may be substantially low (Vaz-Oxlade, 2011). Own risk tolerance may also be influenced substantially by personal preference. For instance, some individuals tend to have soft spot for real estate while others prefer trading stocks and mortgages (Thomsett, 2011). Therefore, Individuals should learn to invite different opinions from third parties partaning their decisions. This is becouse personal decisios are subjected to lack of validity and presence biasness in judging circumstances (Lovallo & Kahneman, 2000). In above connection, business financial position may greatly affected by failure to determine the levels of risk tolerance (Ahmed, 1998). A business organization operating on leverage with dried up cash reserves is susceptible to engage itself in risky projects (Lovallo & Kahneman, 2000). The aims of the company of hitting the jack pot may be adversely affected by dreadful risks (Kahneman and Lovallo, 1993). Based on empirical research findings, people tend to be more willing to fix their debts as soon as possible; however, when they are unable to fix them they compromise the capacity of financial institution to risk tolerance especially when their level of uncertainty is high (Lovallo & Kahneman, 2000). In above conection,the level of optimism or pessimism can be determine by the levels of risk torelance (Lovallo & Kahneman, 2000). Firms with inadequate resources may experience pressure due to their numerous needs competing with few resources. Connnectivly, firms tend to experience high level of optimism on the success of their projects. This may consequently lead to poor risk analysis on the projects being appraised (Kahneman and Lovallo 1993).Therefore employers and business leaders should refrain from making radical decisions on their current affairs while overlooking risk factors (Lovallo & Kahneman, 2000). As a prospect of own risk tolerance, individuals should refrain from making decisions based on their past decisions this is becouse historical data may fail them (Lovallo & Kahneman, 2000). For instance,the costs incurred in the past should not dictate future expenditure on investments this regards to the sunk-cost fallacy (Kahneman, Lovallo & Sibony, 2011). Conclusion Therefore, based on the above analysis it can be scrutinized that both employers and Individuals falls under different levels of risk torelance. This is becouse risk tolerance is held to be more than just financial losses,as it incorporate the character of the investor. Conclusively, individuals should embrace an investment techniques that brends with calculative risk-taking. Additionally,both employers and individuals should analyse risk factors cautiously to determine their levels of risk torelance and prevent exposing themselves into an intolelable risk. References Ahmed, P.K., 1998. Culture and climate for innovation. European Journal of Innovation Management 1(1), 30–43. Daw, C., 1999. Risk training—the neglected part of project management. The Training Report. Crownhill Publishing. pp. 12-13 Available from www.trainingreport.ca Gail, Vaz-Oxlade, 2013. Know Your Risk Tolerance. Retrieved on January 27th 2013 Jarrett, E.L., 2000. The role of risk in business decision-making, or how to stop worrying and Love the bombs. Research—Technology Management. Industrial Research Institute, pp. 44–46. Kahneman, D., Lovallo, D., 1993. Timid choices and bold forecasts: a cognitive perspective on risk taking. Management Science 39(1), 17–31. Lovallo, D., & Kahneman, D. (2000). Living with uncertainty: Attractiveness and resolution timing. [Article]. Journal of Behavioral Decision Making, 13(2), 2-3. Kahneman, D., Lovallo, D., & Sibony, O. (2011a). Before you make that big decision. [Article]. Harvard Business Review, 89(6), 5-9. Michael C. Thomsett 2011. “Understanding Your Own Risk Tolerance”. Retrieved < http://www.mint.com/blog/investing/matching-investments-to-your-risk-tolerance-082011/ > on 27th January 2013 Read More