Change and risk go hand in hand. With change comes risk, and risks tend to bring about change. They are two sides of the same coin. These are the thoughts of project management blogger John Goodpasture. Goodpasture suggests that a minimal understanding of and experience with cognitive psychology are greatly beneficial to understanding risk and change management. When you understand the thinking behind change and risk you will be better able to deal with the results. Although Goodpasture is not a psychologist, he recognizes the importance of learning how people think, perceive, remember, and learn:
We understand a lot about the psychology of risk: read Daniel Kahneman's tome “Thinking, fast and slow” as perhaps the one best book ever written on the thinking mannerisms and processes that underlay our mental processing of risk. Kahneman certainly discusses the consequences of change = f(risk); and risk = f(change), but his main focus is on risk per se. Of the many ideas discussed by Kahneman, the one that is head-and-shoulders the most important for project management is prospect theory, the idea that our feelings about risk and change (i.e. about our prospects) are influenced by our current status (called the reference point by Kahneman).
Goodpasture suggests that four principles from prospect theory make excellent project management tools:
- Perceive risk
- Favor certainty
- Fear losing
- Where you stand depends on where you sit
By perceiving risk, Goodpasture means we should judge the weight of a risk over the probability of its occurrence. Most project managers, however, tend to set their focuses the other way around. Favoring certainty makes sense from a monetary standpoint. The example Goodpaster uses is that we always pay more for insurance than we would for the cost of something going wrong. Something going wrong may or may not happen, but having insurance creates certainty of safety. Therefore, we end up paying much more for insurance just so we can make the risk go away.
Overall, there is a great fear of losing what we have, be it money, status, or otherwise. The tendency here is to protect what we have with more effort than it actually requires. In the business world, when you expel too much effort in one area, you will lose it in another. This obviously creates a host of budgeting concerns. Finally, by saying “where you stand depends on where you sit,” Goodpaster means that being “less rich is unsatisfactory whereas less poor is gratifying.”
Keep in mind there is also a great amount of cognitive dissonance that occurs along with change. Anything that changes the culture or environment of a business will likely be met with at least some opposition. Ideally, change would occur slowly allowing time for everyone to adjust appropriately. Unfortunately, this is not always the case. Understanding cognitive psychology will give us a better understanding of what to expect. Remember, change and risk go hand in hand, so try to adjust to both as best as possible without over or under reacting.