Risk Zone 2012

Understanding Risk Types for effective decision-making.

Grace Walsh & Geoff Trickey, Psychological Consultancy Limited July 2012

This survey was conducted in conjunction with the Institute of Risk Management.

The aim of this research was to identify any systematic patterns in the natural disposition towards risk-taking of the sample, classifying each participant according to a taxonomy of eight Risk Types. Risk Type is considered to reflect deeply rooted dispositions that embrace perception of risk, risk tolerance, propensity for risk-taking and decision-making. The results show the sample to have a diverse Risk-Type distribution that probably reflects the varied roles of the IRM membership. Compared to the general population, there are fewer Intense, Spontaneous and Adventurous Types within the profession. The sample population showed some differentiation across the other five Risk-Types, with prevalence within each Risk Type that is slightly above that of the general population. At a more detailed level of analysis, taking some of the demographic data into account, the analysis reveals greater differentiation by gender, role, industry and years of experience.

Introduction The Risk-Type Compass™ addresses the aspects of personality that are related to a person’s readiness to take risks and their ability to cope with it. As well as categorising each individual as one of eight Risk Types, the assessment generates an overall measure of Risk Tolerance; the Risk Tolerance Index (RTi). The RiskType Compass™ questionnaire is based on personality research, building this more focused assessment on the accumulated knowledge that has produced a considerable global consensus about the structure of personality; the Five Factor Model (FFM). Risk Type is considered to be a component of temperament and, like other personality attributes, to be deeply rooted and consistent over a working life. Under stress and pressure, behaviour is likely to regress, becoming increasingly instinctive and tending to ‘revert to type’.

The Risk-Type Compass™ assessment was designed to allow people management and staff deployment to take account of these influential risk dispositions, to enable a more coherent articulation of human factor risk and to promote a better understanding and self-awareness in those who manage risk or are employed in other risk related roles. It provides insights that can easily be missed by interviews, simulations or short-term behavioural observation.

Meet Grace Walsh and Geoff Trickey at the Risk Zone 2012 Summit on 25-26 September in Austrian Trend Hotel Savoyen, Vienna www.riskzonesummit.com

Risk Type The Risk-Type Compass™ is a psychometric instrument that has been extensively researched and validated against a number of different criteria.

It is important to appreciate that within this Risk Type model, perception of risk, propensity for risk taking and style of decision-making are inseparable. The most extreme risk takers read uncertainty as ‘safe’ until proved otherwise, whilst the risk averse read uncertainty as ‘dangerous’ until proved otherwise. Similarly, their decisionmaking style cannot help but be influenced by their anxiety, impulsiveness, stress tolerance and prudence.

The other side of this coin is that many of the influences on risk taking are incidental, transient, and unsystematic; unpredictable influences that are incapable of quantification. This ‘noise’ in the system has obscured the consistency of Risk Type within the human risk factor. We have to accept that there must always be uncertainties associated with risk and risk taking but also recognise that individual propensity for risk has the consistent and pervasive influence alluded to above.

At its simplest, there are two reasons why people take risks. One is concerned with a lack of fear and anxiety and the other concerns impulsivity and thrill seeking. Combined with their opposite extremes, these create the four poles of the Risk-Type Compass™. The fact that we will all register somewhere on each of these scales and the possibility of being high on either, neither or both, creates the possibility of the following eight different Risk Types.

disappointment, this sometimes becomes a selffulfilling prophecy.

Wary Self-disciplined and cautious , the Wary Type is organised but unadventurous and puts security at the top of the agenda. Ultra sensitive about vulnerability to risk they are zealous about security and fervently seek to control people and situations.

Prudent Very self-controlled and detailed in their planning, the Prudent Type is organised, systematic, conservative and conforming. Conventional in their approach, they prefer continuity to variety and are most comfortable sticking to what they know.

Deliberate Self-confident, systematic and compliant, the Deliberate Type tends to be unusually calm and optimistic. They experience little anxiety and tackle risk and uncertainty in a business-like and unemotional way. They never walk into anything unprepared.

Composed The Composed Type is cool headed, calm and optimistic, but at the extreme may seem almost oblivious to risk and unaware of its effect on others. They take everything confidently in their stride, seem quite imperturbable and manage stress well.

Adventurous

Spontaneous Uninhibited and excitable, this Risk Type enjoys the spontaneity of unplanned decisions. They are attracted to risk like moths to a flame, but are distraught when things go wrong. Their passion and imprudence make them exciting but unpredictable.

The Adventurous Type is both impulsive and fearless. At the extreme, they combine a deeply constitutional calmness with high impulsivity and a willingness to challenge tradition and convention.

Intrepid and never discouraged, they quickly rebound from any setback.

Carefree

Intense The Intense Type tends to be passionate but pessimistic and alert to any threat to their equilibrium. They invest passionately in people and projects but, haunted by the fear of

Spontaneous and unconventional, the Carefree Type is daring, excitement seeking and able make decisions ‘on the fly’ in fast moving situations.

Their impatience and impetuous nature can risk making hasty or unwise decisions.

Meet Grace Walsh and Geoff Trickey at the Risk Zone 2012 Summit on 25-26 September in Austrian Trend Hotel Savoyen, Vienna www.riskzonesummit.com

THE ‘TYPICAL’ GROUP

Individuals who show none of the extremes that characterise other Risk Types are classified as ‘Typical’. Because they score close to the mean they will not naturally be exceptionally prudent or unusually reckless, neither will they be particularly emotional or extremely calm. Any pronounced risk-taking behaviours will likely be due to attitudes developed from specific experiences.

Figure 1. Percentage of each Risk Type in the IRM sample in comparison to the general population

Process The aim of the research was to indentify any systematic patterns in the disposition towards risk in a sample of Risk specialists. The survey was carried out in conjunction with the Institute of Risk Management (IRM), sampling risk specialists on an international basis. Risk specialists were invited to complete the Risk-Type Compass™ questionnaire online.

Participants were also asked to provide demographic information, such as gender, job role and level of qualification.

Results Initially, analysis was conducted to examine the proportion of Risk-Types across the whole sample of 440 risk specialists. Further analysis was conducted investigating the different demographic data that included gender, age, job title (e.g. Chief Risk Officer, Head of Risk/Director of Risk, Risk Manager or equivalent, Risk Analyst or equivalent, Risk Consultant), years in the job (less than 2, 5-8, 12 or more), industry (Oil and Gas, Business and Professional Services, Financial Services-Banking, Transport, Public Sector etc.), IRM membership, nationality, salary range and highest qualification.

The results were analysed and compared with a ‘general population’ sample of 2,000 working adults from a broad range of occupations. Within this comparison sample, there is a close balance of each of the eight Risk-Types. The results from the IRM sample show a clear shift in terms of three of the Risk Types; the Intense, Spontaneous and Adventurous Types, in each case having a lower prevalence. This balance is redressed across the other five Risk Types in which the IRM sample has a higher prevalence. The point to note is that these differences compared to the general population occur across three Risk Types that vary considerably, being designated as very high risk tolerance, average risk tolerance and low risk tolerance. However, the overall picture is one of a greater diversity, or less differentiation, of Risk Types than is usual in many other professional groups. This suggests that the IRM membership may be involved in very different roles and working practices associated with different aspects of risk management.

Meet Grace Walsh and Geoff Trickey at the Risk Zone 2012 Summit on 25-26 September in Austrian Trend Hotel Savoyen, Vienna www.riskzonesummit.com

Figure 2. Percentage of each Risk Type in the IRM sample across gender

Gender Diversity Although Risk Types seem to be evenly distributed in the population as a whole, there are very different incidents of males and females within each Risk Type. These data also reflects significant differences in Risk-Type across gender. Results show there are over twice as more women who fall in to the Wary (19.6%) and Prudent Types (18.35%) compared to the male sample population (Wary Types 8.51% and Prudent Types (8.51%).

In contrast, there are three times more male Adventurous Types compared to women (12.4% and 3.8% respectively).

Year’s Experience Results showed differences in Risk Type when differentiating across years of experience in the job. From the data, those in the role less than 2 years are more Wary and Prudent compared to those 8-12 and 12 years plus. In general, positions on the compass graphic are more risk tolerant in the lower half. These results suggest that the more risk tolerant risk specialists have a more prolonged career in the field. Those who are 8-12, 12 years experience score higher on the Deliberate, Adventurous and Carefree Types.

They are significantly less Wary and Prudent in comparison to those less experienced. The dominant Risk Types for the more experienced sample population are Adventurous, Carefree, Composed and Deliberate. The central theme across these Risk-Types is a confidence in ones own ability, being calm and level headed, optimistic and resilient. The dominant Risk Types of those newest to the profession are the Wary and Prudent Types. The Wary Type combines anxiety about risk with a methodical approach and shrewdness. At the root of the Prudent Type is a desire to eliminate uncertainty through compliance, conservatism and detailed planning.

Industry Figure 4. Risk Type distribution across industry sector

Figure 3. Risk Type distribution across year’s experience

Meet Grace Walsh and Geoff Trickey at the Risk Zone 2012 Summit on 25-26 September in Austrian Trend Hotel Savoyen, Vienna www.riskzonesummit.com

An analyses examining the proportion of Risk Types falling within the various industries found quite different dominant Risk Types across the sectors analysed (Public Sector, Financial Services-Banking, and Business and Professional Services). The most significant for the Public Sector is the Wary Type, within the Business and Professional Services, the Carefree Type is most prevalent, and within Financial Services-Banking the Deliberate Type dominates. These differences are quite similar to those found in other research studies and are all generally in the expected direction. Although the risk profession, when observed as a whole, is fairly evenly distributed across Risk Types, there are obvious differences when viewed across industry sectors. The finding further supports the view that specific aspects of personality may influence attraction, recruitment and retention within these specialisms.

Summary As a whole, the Risk profession seems quite diverse but this analysis highlights significant differences in Risk Type when viewed across industry, gender and years of experience. This would suggest that the risk profession have quite varied roles, responsibilities, and working practices. This is highlighted by comparisons with risk specialists in other samples; auditing , engineering , or recruitment for example, where there are clear and well defined trends in prevalence of Risk Type. The IRM sample was taken from across a range of industries including energy, transport, business consultancy and the Public Sector, so differences in the incidence of Risk Type should perhaps be expected.

Differences across gender reflect those observed for the general population. This prompts the generalisation that women are by nature more cautious, organised and systematic compared to men, who are in general, more risk taking and adventurous. These differences are also evident when differentiating gender across job title and there are twice as many men as there are women in CRO, Head of Risk and Director of Risk positions. Equal numbers are seen across gender for Risk Manager and Risk Consultant and there are over twice as many women Risk Analysts compared to men in the sample.

Differences in prevalence of Risk Types according to years experience in the risk professions, move from the dominance of Wary Types when first joining the profession to the dominance of more

risk tolerant individuals as they move further along in their career. Given that Risk Type is an element of personality, it is expected to be stable over a working life, so these figures suggest that those who last longer and who stay in the profession longer are those that are more risk tolerant and resilient. There were more of the longer serving people in the sample (12 or more years) in Business and Professional Services than in the other sectors. The majority of those with 8-12 years experience were in to the Financial Services-Banking sector; a pattern that may well reflect status or levels of remuneration.

Industry differences highlighted by this analysis again reflect trends discovered by other research studies. Differences will be seen across departments and specific roles within an organization, but there will typically be a general trend within the Risk-Type spectrum for the industry as a whole (Risk-Type Culture?). This may usefully be interpreted within Schneider’s ‘the people make the place’ theory of organizational culture and his Attraction, Selection, Attrition (ASA) hypothesis. As the culture of the organisation becomes distinctive, it attracts like-minded people, the selection processes increasingly favour those that ‘fit’ and appointees that don’t fit leave or are fired.

Implications The results of this survey and data analysis strongly support the view that job roles and working practices differentiate across Risk Types.

This has particular implications for those working within risk management because specialisms and practices are themselves so diverse within this broad professional sphere. Firstly, an individual’s Risk Type will be a significant indicator in terms of their own ‘fit’ in relation to different professional opportunities and requirements. A second factor concerns self-awareness and Risk Type. Risk Type has implications for perception of risk, tolerance of risk, propensity for risk-taking and for decisionmaking. Given the considerable differences between opposite extremes across any axis of the Risk Type Compass, it is clear that this amounts to a pervasive influence on perception and decisionmaking. A risk manager needs to be aware of any potential bias in themselves and, so far as the people they are dealing with are concerned, aware of the extreme differences in outlook that they may be up against and with whom they need to communicate, influence and collaborate.

Meet Grace Walsh and Geoff Trickey at the Risk Zone 2012 Summit on 25-26 September in Austrian Trend Hotel Savoyen, Vienna www.riskzonesummit.com