Stakeholder Risk Management: Essential Steps to Secure Project Success
Effective risk management means preventing crises (rather than reacting to them), avoiding unexpected opposition, and finding the smoothest path to success on projects.
But if you don’t feel confident in your current risk management processes, you might be missing an important component: stakeholders.
When you integrate stakeholders into risk management, you become more effective at identifying, managing, and responding to risk. On the other hand, leaving your stakeholders out or failing to properly engage them brings its own set of risks.
So, let’s take a closer look at what stakeholder risk management is, common sources of stakeholder risk, why it’s important to get right, and three key steps to integrate stakeholders into risk management.
What is Stakeholder Risk Management?
Stakeholder risk management refers to the human aspects of managing risk, which is the potential threat of future undesirable events, conditions, or situations.
To manage stakeholder risk, organizations must uncover what aspects of the project stakeholders care about, what actions they may take in response to change, how the project might be impacted, and how they can mitigate any potential negative impacts.
The process of managing stakeholder risk may include:
- Engaging with stakeholders to identify and manage risks
- Considering how different stakeholders may be impacted by specific risks
- Uncovering how certain stakeholders may improve or worsen risks for your organization
- Identifying which stakeholders present more of a risk to your project than others (especially if you fail to properly engage or manage them)
- Taking action to manage “risky” stakeholders to minimize potential risk to your organization or project
Types of Stakeholder Risks
Let’s explore some of the most common stakeholder risks that you’ll come across in a project — including what can go wrong when you don’t properly manage or engage stakeholders.
Relationship Risks
Strategic relationship building can go a long way in minimizing risk to your project and organization. Issues that may make it more difficult to build strong stakeholder relationships include:
- Incomplete networks: If you fail to consult the ‘high interest’ stakeholders (as identified through stakeholder mapping), you might miss building relationships with key stakeholders
- Lack of support: Weak relationships indicate low levels of trust, and if stakeholders don’t trust you, they’re unlikely to support your work (or provide a social license)
- Resistance to change: If stakeholders don’t trust you to act in their best interests, they’ll also be less likely to accept changes introduced by your organization or project
- Active opposition: Stakeholders actively working to undermine your project and engagement initiatives can become a barrier to your relationships and your work
Reputational Risks
With every action or stakeholder communication that doesn’t go to plan (or isn’t received as intended), you risk the reputation of your organization and project. Potential sources of reputational risk can include:
- Miscommunication: If your communication is inaccurate or not timely enough, it may confuse stakeholders and erode trust in your organization
- Negative media coverage: If you are criticized by media sources, this may negatively impact the perception of stakeholders and community members (and make them less likely to support you)
- Community concern: If a community has expressed concerns about your project, you must address these promptly — if not, won’t be able to uphold your reputation as an ‘organization that cares’
Financial Risks
Failing to effectively engage your stakeholders can expose your project and organization to a range of financial risks and costly problems. Common sources of financial risk include:
- Scope creep: To minimize this risk, you must clearly define project scope from the start by properly engaging stakeholders and managing expectations
- Resource allocation: To minimize conflicts and costs you haven’t budgeted for, it’s important to properly consult stakeholders so you can define resource requirements from the start (and allocate them fairly)
- Project delays: To minimize delays (that will likely lead to higher project costs), you must sufficiently consult stakeholders during the planning process to coordinate requirements, define milestones, and secure their cooperation
Security Risks
Managing and engaging stakeholders will require you to record, manage, and protect stakeholder data. Expect increased security risks due to challenges, such as:
- Confidentiality concerns: If confidential data and relationships aren’t handled properly, the information may end up in the wrong hands, leading to conflicts or even legal issues
- Conflicts of interest: Some information may need to be withheld from certain stakeholders if their professional or personal interests don’t align with the objectives of the project
- Dispersed data: If there are multiple people managing stakeholder relationships and engaging across multiple platforms (online and offline), there’s an increased risk of losing or miss-handling stakeholder data
Legal Risks
Getting your stakeholder engagement right is key to avoiding a range of costly and time-consuming legal risks, such as:
- Compliance issues: You may be required to engage with specific stakeholder groups sufficiently (and provide evidence of that engagement) as part of your project conditions
- Contractual conflicts: Effective stakeholder engagement can help you to clarify contractual requirements and ensure that everyone understands what’s expected of them
- Liabilities: Your organization must reasonable care to avoid exposing stakeholders to foreseeable risks of harm throughout the project and consultation process, or they may be liable for damages
Why is Stakeholder Risk Management Important?
Stakeholder risk management can bring significant benefits to your project and organization, while helping you avoid many problems that can occur when risks aren’t properly managed.
Benefits of Managing Stakeholder Risks
A stakeholder approach to managing risk can benefit your project and organization by helping you make better-informed decisions that take into account stakeholder perspectives and interests — and are far more likely to ensure a successful project outcome.
For example, a local council planning the location of a new public park could engage with environmental groups and community members. This process might eliminate certain areas frequented by native animals, while highlighting areas currently underserved by age-appropriate play equipment and the importance of gated play areas for young children. By undertaking this engagement early on, the council could confidently proceed with the planning process, knowing that the public park would be ideally positioned to serve the community.
By taking a more comprehensive approach to managing risk and engaging stakeholders in the risk management process, you’re also more likely to gain social acceptance from stakeholders.
If you were planning to build a new shopping center, you’d want to identify all the potential risks associated with the project before committing to it. By engaging with local community members, government and regulatory bodies, potential tenants, and environmental/infrastructure groups you could quickly capture a broad range of insights and perspectives. And by involving these stakeholders early on, you’d also be more likely to gain stakeholders’ respect and support, especially if their feedback is used to shape the project.
Consequences of Poor Management
Poor stakeholder risk management is likely to lead to conflicts and delays — as well as negative outcomes (or even failures) from your project.
If you fail to identify a risk due to insufficient stakeholder engagement, you won’t be able to take steps to avoid that risk or minimize negative impacts.
Consider this example. If a large energy company planning to develop a wind farm on agricultural land only engaged certain stakeholder groups, but didn’t consult with neighboring farmers, this could lead to issues down the track. For instance, wind turbine positioning may have unintended consequences. This could impact pest control methods and lead to reduced yields, rising community tensions, and opposition to future projects. Better stakeholder engagement could anticipate and avoid these risks — and the resulting compensation claims, reputation damage, and retrofitting costs.
Consequences can also arise if you fail to assign a responsible stakeholder to manage each specific risk — even if everyone is aware of those risks. In some cases, different parties may assume that others are taking action to monitor and minimize that risk, leaving your organization more exposed than ever.
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Stakeholder Risk Management in 3 Steps
So, how do you actually undertake stakeholder risk management? We’ve broken the process down into three key steps.
1. Identify Risks and the Stakeholders that Care
Stakeholder risk identification is a blend of two common business practices: stakeholder identification and risk identification. It aims to uncover potential risks and threats to your project or organization (and manage them) by engaging and consulting with these stakeholders. Key processes for stakeholder risk identification include:
- Identifying stakeholders: All your stakeholders have an important role to play in risk management, so brainstorm to come up with an extensive list of potential stakeholders — the people, groups, and organizations likely to be impacted by, have an influence on, or an interest in your work
- Thinking outside the box: Consider the stakeholders that should be consulted but are often overlooked until they push back against a decision that directly or indirectly impacts them (secondary stakeholders matter, too)
- Consulting stakeholders: Undertake initial consultation with stakeholders to uncover risks that you were previously unaware of (thanks to your stakeholders’ unique perspectives, expertise, and concerns)
- Incorporating risks: Bring these newly identified risks into your overall risk management framework (more on this below)
2. Analyze Risks and Stakeholders to Prioritize
Following your initial identification of risks and stakeholders, it’s time to go deeper into analyzing both by tapping into both qualitative and quantitative data. Useful methods and tools for this can include:
- Stakeholder interviews: Run interviews and focus groups with selected stakeholders to explore their opinions, perceptions, concerns, and insights into risks
- Probability calculations: Research historical data and speak to relevant stakeholders to determine the likelihood of each risk occurring
- Impact assessment: As part of your stakeholder assessment, gather data from stakeholders to calculate potential financial losses, productivity reductions, and other measurable impacts of identified risks
- Stakeholder mapping: Use the multi-dimensional stakeholder mapping method (interest, impact, influence, criticality, effort, position) to better understand who your key stakeholders are, how you can segment them, and how you can prioritize them in your engagement
- Stakeholder influence: Pay careful attention to the criteria of “influence” and don’t underestimate the potential influence of your stakeholders
- Stakeholder networks: Use stakeholder network mapping to understand the relationships and influences on your stakeholders and how this might impact risk (and your risk response)
- Stakeholder communications: Run qualitative stakeholder analysis on your communications with stakeholders (email, call transcripts, online comments, etc.) to determine what issues each person cares about and their sentiment towards your organization
- Stakeholder risk profiles: Document risk-specific information alongside your stakeholder profiles that captures their expected response to different risk scenarios, tolerance for risk, and preferred approaches to managing/mitigating risk based on what you know about them (interests, relationships, position, influence, concerns, etc.)
A combination of these methods will help you understand how to prioritize different risks — and prioritize engaging with the stakeholders that are able to influence them (or those that are likely to be impacted by them).
3. Involve Stakeholders in Risk Planning and Response
Finally, it’s time to bring together the findings from your risk analysis with some strategies that can help you develop (and implement) a comprehensive risk management plan. This could include:
- Strengthening relationships: If you build strong relationships with key stakeholders, they’re more likely to share concerns early, provide more in-depth insights, and stay patient and supportive during a crisis
- Stakeholder participation: Be sure to involve stakeholders in the risk management process, as well as crisis communication and management processes
- Risk governance: Involving stakeholders in different phases of the risk governance process (from pre-assessment and risk appraisal to risk evaluation and risk management) to improve the quality and legitimacy of risk management decisions
- Multimedia engagement: Multimedia is a great tool for engaging stakeholders in risk management, capturing their knowledge and bringing them into your overall process
- Assigning responsibility: Consider allocating key risks to the stakeholders best suited to managing them, based on stakeholder attributes (such as interest, influence, and impact), stakeholder position, and how capable they are to manage or mitigate a risk
- Communicate with transparency: Regularly communicate with stakeholders to keep them informed about potential risks, any measures you’re taking, and how they can help to minimize those risks
Remember: stakeholders, risks, and organizations change over time. You’ll need to continually engage stakeholders to uncover new risks and concerns, along with new approaches to managing stakeholder risk.
Stakeholder Risk Management With Simply Stakeholders
It’s clear that more organizations can benefit from integrating their stakeholder management and risk management processes. A stakeholder engagement approach will allow you to be more proactive with identifying risks — and if you build strong relationships with your stakeholders, you’ll be in a much better position to deal with risk events and crises when they do occur.
If you’re already managing and engaging your stakeholders using stakeholder software, you can get even more value from your investment by using it to manage and identify risk. For example, you could use Simply Stakeholders to:
- Record stakeholder lists: Keep up-to-date, secure records for all your stakeholder contacts
- Map stakeholders: Create detailed relationship networks maps or generate stakeholder maps to visualize, segment, and prioritize stakeholders based on six different criteria
- Build stakeholder risk profiles: Add any details you like to your stakeholder profiles, including responsibilities, risk management strategies, risk tolerance, and more
- Communicate with stakeholders: Send and receive emails, or request stakeholder input via forms, with every interaction recorded in the software, analyzed, and linked to the relevant stakeholder
- Integrate with other tools: Use the API or Zapier integration to connect Simply Stakeholders to other risk management tools for seamless stakeholder data management
Explore Simply Stakeholders’ features or book a demo with our team to learn more about our solutions for effective stakeholder risk management.
