Its only when we understand the business value of incorporating risk in our decision-making process that we shall deliberately build the requisite risk management capabilities in our organizations .
RISK MANAGEMENT
Is Your Decision-Making Risk Intelligent ?
By Reuben Kisigwa
Introducing Risk In Decisions
According to P . F . Drucker - “ Whatever a manager does he does through making decisions .” The leaders of an organisation make decisions that are put into action by the process owners in order to resolve all issues pertaining to success . The fact that the actual results could be better or worse than anticipated is a crucial component of this concept . In other words , we should be cautious not to describe risk solely in terms of the negative ; rather , we should discuss downside risk exposure and positive potential , also known as opportunity .
Implications Of Decision Making
The decision-making process is exercised by the leaders . They make decisions based on some deliberate and conscious rationale or judgment .
The decision-makers are presented with options when making a choice . To weigh various options and choose the best one calls for wisdom and expertise . However , when there are no alternative options available , there is no point of even talking about wise leadership in decision making .
Organizational decisions are frequently made when it is unclear whether the choices being made will be successful or disastrous . Risk is the possibility that a decision will result in a loss or an unfavourable result . In actuality , practically every decision made by a person involves some level of risk , although some decisions are significantly riskier than others . In organizational management , risk and decision-making are two interrelated concepts that are both connected to a variety of uncertainties .
Types Of Decisions
The three main categories of business decisions made by organizations are strategic , tactical , and operational .
Strategic Decisions : These are important long-term decisions that pave the way for an organization ' s future success . The foundation of strategic decisions are mission statements and long-term corporate plans . Strategic decisions , which are frequently made by top management , aim to address the following issues : How the organisation is currently performing , whether the organisation wishes to capitalise on the performance and how it intends to achieve the same . Decisions that are strategic in nature are made first , and all other decisions follow from them . on an organisation . A tactical decision can serve as a quick reaction to a shifting business climate .
Operational Decisions : Operational decisions are typically made by operational managers and other staff members . An operational decision affects daily operations and only has a temporary effect on a business . These decisions are typically directed by senior level authorized guiding frameworks , even though senior management is not directly in charge of them .
Role Of Risk Management In Decision Making
Risk plays a crucial role in corporate decisions , especially in businesses that depend heavily on technology . Leaders must therefore get ready to embrace the effective management of risk . The likelihood of a project or business failing must be acknowledged , and an appropriate mind-set must be developed . Organizations must make sure they have efficient risk management systems that accurately depict the three levels of risk : high , medium , and low . However , the process of risk analysis and the capacity such analysis affords the organization to adapt to future problems and surprises are what matter most .
The decision-makers have a goal in mind while making a decision . They present and evaluate potential courses of action before settling on one that will most likely help the organization achieve its objectives .
Tactical Decisions : The next category of very significant business decisions is tactical decisions . They concentrate on more detailed applications of the broad strategy that have a medium-term impact
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Its only when we understand the business value of incorporating risk in our decision-making process that we shall deliberately build the requisite risk management capabilities in our organizations .
In order to manage enterprise risks , a decision must be made that cascades from the strategic level to the operationalization . A decision ' s implementation is just as crucial as its formulation . ERM will assist the business in carrying out its risk-based decision-making , which implicitly takes the process of actions performed upon such a decision at its earliest stages into consideration .
Incorporating Risk Into Decisions
The ISO 31000 Risk Management framework is an international standard
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