The influence of stakeholders cannot be underestimated. Nor can it be left to play out on its own. Some individual stakeholders will be an immense source of opportunity; others, a worrisome source of risk. Still others may straddle the fence or even switch sides over time. Understanding the views, concerns and potential impacts of stakeholders on your project is essential to ensuring they do not prevent its timely progress.
This is where proactive risk management comes in as part of a well-planned stakeholder management strategy.
What is stakeholder risk management?
Stakeholder risk management allows stakeholder management teams to answer three vital questions:
- Who cares about the project?
- What exactly do they care about?
- What are we going to do about it?
Why is stakeholder risk management important?
Good stakeholder risk management can increase the likelihood of securing social acceptance for a project. The opposite also holds true.
Simply identifying a project’s risks is not enough to mitigate their impacts. Since risks are always linked to one or more stakeholder groups – who may be directly or indirectly influencing or influenced by these risks, this means that the bigger a risk to a project’s outcome, the more closely the associated stakeholder groups must be managed.
In turn, managing stakeholders productively requires careful and meaningful engagement with them. Teams must demonstrate a willingness to build long-term relationships based on mutual understanding, trust and compromise – often through two-way dialogue and consultation.
When done effectively, engagement tells the stakeholder:
- We’re willing to take the time to understand how you’re affected by the project.
- We’re willing to take the time to find out what you care most about.
- We’re willing to take the time to work with you to ensure acceptable outcomes.
Stakeholders are much more likely to support a project if they feel that the people behind it have taken the time to listen, understand and address their questions and concerns. Winning stakeholder support is the ultimate goal of risk management.
The journey to stakeholder support can be smooth sailing or a long, painful ride for teams. This will depend on the project itself, the stakeholder landscape, and the tools being used to manage aspects such as community relations and government affairs & public relations.
How do you manage stakeholder risk?
Since both the project and stakeholder landscape may change over time, stakeholder risk must be managed across the entire project lifecycle. A prerequisite to knowing where project stakeholders stand is to first identify who these stakeholders are, where they are located, what they care about, to what degree, and why.
An essential first step in risk management therefore entails mapping stakeholders – that is, identifying, analyzing and prioritizing stakeholders according to their level of interest in and influence over a project. This process provides project managers with vital information about the existing stakeholder landscape and how it should be best navigated.
Stakeholder mapping is an ongoing process. As project stakeholders come and go, change opinion and gain/lose influence, teams will need to adapt their stakeholder engagement strategy to ensure it remains effective within this evolving ecosystem.
6 main steps of stakeholder risk management
Stakeholder risk management can be broken down into six main steps, which are carried out in a continuous loop:
- Identify risks
- Map stakeholders
- Plan strategy
- Engage stakeholders
- Measure progress
- Adjust strategy
Looking for a more in-depth look? See the best management methodology for stakeholder engagement and risk management.
Impacts of poor risk management
Failing to manage stakeholder risk properly can open the door to all sorts of problems, such as conflicts, project delays and employee turnover. In some cases, it can even lead to fines, lack of stakeholder acceptance, and project failure.
With the omnipresence of social media and mobile phones, stakeholders have the tools to monitor, record and share information globally about your project at lightning speed. It is incumbent for the owner of the project to also own the conversation that surrounds it.
3 Top Reasons Projects Fail
- Failure to communicate
- Failure to engage stakeholders
- Failure to address cultural change
– Calleum Consulting “Why do projects fail” 2015
Strategies for managing stakeholder risk
Use dedicated tools to manage stakeholder risk
Specialized stakeholder engagement software can be used to manage stakeholder risk more effectively. In addition to centralizing all stakeholder data, engagement activities and compliance requirements so that this information is easy to find, share, track, update and report, the software’s powerful stakeholder mapping and stakeholder analysis features make it easier to prioritize stakeholders and target engagement efforts with much greater precision, leading to better outcomes with much less effort.
Stakeholder software also creates a powerful corporate memory to streamline the efforts of future projects by creating an ever-growing stakeholder database and repository of lessons learned.
Using stakeholder software brings another significant but sometimes overlooked benefit. By centralizing information and making it accessible across multiple departments, it helps to break down silos which can hinder the timely flow of important information.
Implement a grievance mechanism
Implementing a mechanism for handling community grievances or complaints will make it much easier to prevent, mitigate and resolve possible conflicts with local stakeholders in a timely manner.
Putting a transparent and systematic mechanism in place also demonstrates to local communities a sense of accountability and a willingness to listen. This alone can help to largely dismantle what’s often a key stumbling block to creating that climate of trust that’s so vital to productive community relationships.
Implementing a tool that allows you to anonymously collect grievances from community members and other stakeholders can be particularly helpful. For a broader look at the guidelines for developing an effective grievance management mechanism, check out our blog on grievance management mechanisms. Or access the CAE’s Grievance Mechanism Toolkit.
Communicate with stakeholders to mitigate risk
92% of CEOs agree that communicating information about risk is critical to a project’s long-term success.
Teams that are committed to communicating risk to stakeholders also recognize that potential issues must be identified beforehand. This foresight better equips teams to address arising issues with thoughtful problem-solving, rather than with ill-prepared confusion.
The in stakeholder software will make it easier to detect, visualize and report potential risks based on a range of criteria, whether it’s by stakeholder group, project phase, or geographic location.
Why communicate risks to stakeholders?
- It demonstrates and promotes accountability.
- It helps to set more realistic stakeholder expectations.
- It ensures your entire team is on the same page.
Managing risks in infrastructure projects
Managing social risk in mining and oil & gas
In large infrastructure projects, such as those found in the mining industry, social license to operate is still the biggest risk companies face. Missteps of any kind can jeopardize access to capital or even lead to a total loss of social license to operate.
Mexico’s Energy Reform
Back in 2015, Mexico allowed private investors to bid on oil, natural gas, shale, deep/shallow-water, and other possible energy reserves for the first time, ending a 50+ year monopoly by the state-owned oil company Petróleos Mexicanos (Pemex). Pemex’s inability to keep up with technological change was one of the driving forces behind this Mexican energy reform.
Despite the estimated 100+ billion barrels of underground oil and natural gas ripe for development, the first bid did not go as well as the Mexican government had hoped. This was due to a number of reasons:
- The exploitation of fracking wells was a massive challenge in this arid region of Mexico, where infrastructure was underdeveloped and water scare.
- The presence of drug cartels represented considerable safety risks.
- To achieve an acceptable ROI on their investment, companies would need to conduct proper social and environmental baselines and impact assessments, collaborate with local partners who understood Mexico’s reality and who wielded a certain amount of political clout.
- Since shale gas projects always come with resistance from local communities, meeting demands such as opportunities for employment would be key to gaining both access to land and social acceptance.
Managing social risk in transportation
The COVID-19 pandemic all but reshaped the transportation industry overnight. It also added a whole new layer of social risk for this sector.
Even when viewed from a “business-as-usual” perspective, the social risks in transportation run the gamut:
- Greater regulatory oversight
- Cyberattacks on physical assets
- Advancing technology
- Ongoing driver shortage
- Deteriorating infrastructure
- Demand volatility
Failing to address the social implications of these risks on customers, employees and local communities, as well as on the organization itself, can lead to all sorts of difficulties that can put transportation projects – and the agencies behind them – in hot water.
Managing social risk in energy
Over the decades, the energy sector has made significant strides in managing social risks. Among these efforts:
- Addressing negative public perception to protect reputation and access to investors
- Ensuring site security amid a rise in terrorist acts
- Complying with a growing regulatory burden
- Minimizing the health and environmental impacts of the pollution created through power generation
- Controlling pricing in the face of climate change
That being said, a lack of crisis preparedness can devastate an industry. In Australia, which has been crippled by a prolonged energy crisis, stakeholder relationships have been greatly strained.
Any project that involves constructing, maintaining or exploiting assets needs to keep its stakeholders in mind at all times to ensure their continued support.
Managing risk in telecom
As 5G wireless technology spreads globally, so does the conversation surrounding its potential risks. While 5G promises significantly greater performance than previous generations, as well as economic benefits, two key concerns are dampening the hype around 5G technology and are worth addressing when communicating with stakeholders:
- Public health: The health effects of radiofrequency (RF) radiation are still under dispute. Companies will need to stay up to take on applicable safety codes and regulations on RF energy.
- Security breaches: The software and firmware of 5G-compatible devices from Chinese manufacturer Huawei have been associated with serious security breaches. Combined with the fact that Chinese law requires companies to cooperate with national intelligence services, the risk of possible Chinese government espionage through these compromised devices is being taken very seriously. Some countries have banned Huawei from their networks entirely; others have granted it only partial access to networks. To minimize their exposure to such security risks, telecom companies will need to select vendors with care and avoid relying on a single vendor.
Implementing grievance mechanisms to manage risk
Stakeholder risk management is an inherent part of any project. Managing these risks proactively simply gives you more control over the process and the outcomes. While certain sectors are obliged to implement issue and grievance handling mechanisms to comply with IFC and other lender requirements, all sectors can benefit from adding these mechanisms to their risk management approach.
Having community complaints and grievance mechanisms in place can serve as an early warning system for identifying and understanding stakeholder concerns that could, if left unaddressed, pose a risk to a project’s successful completion. These risks can range from damage to corporate reputation to project disruption to outright closure.
Stakeholder management software goes beyond the functionalities of simple risk management tools to provide a 360 degree view of your project’s stakeholder landscape – including all associated risks. By enabling teams to work with data that’s more complete, more reliable and more easily accessible, stakeholder software will improve day-to-day efforts and overall decision-making, resulting in better project outcomes.