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Using Stakeholder's Analysis as a Problem Solving Tool

Updated on February 6, 2017
What decison to make?
What decison to make? | Source

What is a stakeholder? The dictionary defines a stakeholder as a person or group that has an investment, share, or interest in something, as a business or industry. However, after reading this article you will find that it can be applied very effectively to other than business issues.

The stakeholder analysis is a tool that is taught to MBA's to analyize ethical and moral delimmas where there is no clear-cut, black and white solution, It provides the framework to analyze these issues and make decisions based on the analysis.

The stakeholder model is shown below.

Stakeholder Model

 
Stake Holder 1
Stake Holder 2
Rights/Responsibilies
 
 
Harms/Benefits
 
 
 
 
 

As you can see there are two stakeholders in this model; however you can have as many as necessary to analyze the situation. It just may become more unwieldy with the more you have. In each situation. Each stakeholder has certain rights and responsibilities with harms and benefits as a result of their actions. Now, let's look at how to use this. Our first example is going to be with the sub-prime mortgage debacle of the housing boom.

Sub-prime Mortgages

During the housing boom, lenders were making many sub-prime mortgages. Borrowers were signing up for these mortgages without proof of income and knowledge that the mortgages they were getting were variable rate and the interest rates would increase to the point where they could not afford them. Now let's look at the analysis from the lender's viewpoint and then from the borrower's veiwpoint.

Lender's Analysis

What are the Lender's Rights? -The lender had the right to make this kind of mortgage because there were no rules or regulations governing disclosure. The lender did not have to tell the borrower that the low interest rate mortgage was going to increase after a certain period of time.

What are Lender's Responsibilities? - From a moral standpoint the lender had the responsibility to tell the borrower that it was a variable rate loan and that the borrower should qualify for the loan by providing proof of income.

What Harms can Come to the Lender? - The harm that can come from this transaction is that the lender could be liable for fraud, if charges were lodged against him. This was also very unethical and created a moral hazard for the financial industry.

What are the Benefits to the Lender? - The lender could make a commison and bonus from this and increase his firms bottom line. He also may get a promotion.

Now let's look at the borrower's analysis.

Borrower's Analysis

What are the Borrower's Rights?- The borrower had the right to complete this transaction without providing proof of income, because there was no law that stateed that he had to.

What are the Borrower's Responsibility? - The borrower had the responsibility to be informed about the transaction. He needed to understand the risk involved by asking the lender questions and making sound decisions based on the information provided.

What are the Harms to the Borrower? - The borrower can get into a loan that he has very little or no knowledge of the risks which could result in foreclosure of the property.

What are the Benefits to the Borrower? - The borrower can get a low interest loan without any proof of income and could afford to own a home that he would not qualify for if the rules and regulations were in place.

Decisions to be made as Result of this Analysis

The following course of action should be taken as a result of this analysis.

  1. Rules and regulations should be put in place that ensure that a borrower qualifies for a loan by providing proof of income.
  2. The lender must due diligence and provide all necessary information to allow the borrower to make an informed decisions about the interest rate increasing.
  3. The borrower must understand the obligations that he is under by signing documentation that he or she verifies and agrees to the terms of the contract.

That was a thorough analysis of a business transaction. As I stated in the beginning the analysis can be used for more than business transactions. Here is a simpler situation.

A gardner is using a leaf blower that is in the very high decibel range and it is very annoying to you.

The gardner has the right to use the leaf blower. He also has the responibility to get the job done as efficiently as possible, so that he can move on to the next job. The harm is that it is very annoying to you. You have the right to complain and a responsibility to yourself to stop this invasion of privacy. So you go to the city and find there is an ordinance that states all leaf blowers must have mufflers on them. Now you have the right to enforce this ordinance.

Conclusion

You can see that this type of analysis allows one to look at issues from each stakeholders view point and come to some reasonable decision based on the analysis. When you can put yourself in the others persons position, it can give you empathy for their situation. Try using this on some situation that is in the news and see what your outcome would be.

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    • peoplepower73 profile image
      Author

      Mike Russo 5 years ago from Placentia California

      Thanks Brett. I didn't realize it until I wrote it, but it's really a form of empathy.

    • Brett.Tesol profile image

      Brett Caulton 5 years ago from Thailand

      Voted up and useful. It is always helpful if you can understand both side of the argument, especially in a deal scenario.

      Thanks for SHARING.

    • peoplepower73 profile image
      Author

      Mike Russo 5 years ago from Placentia California

      I agree with everything you are saying, I was not taking sides. I'm merely using that as an example of the analysis, because it is so conterversial.

    • michiganman567 profile image

      michiganman567 5 years ago from Michigan

      I think that everyone had some fault in the subprime disaster. The government told the banks that they had to lend to undesirable candidates. The Banks thought that they were going to make money no matter what. Even if they foreclosed, property values were supposed to continue to rise. The people that were borrowing should know what they can and can not afford. They are ultimately the most responsible. Why would anyone trust the bank or the government.