A Model for Decision-Making Risk

Employees are faced each day with important decisions that they need to make, which force them to evaluate potential benefits and risks and act accordingly. Organizations depend on the successful decisions that business leaders make. Unfortunately, business students do not spend as much time as they should studying decision-making risk and how to evaluate it. Recent organizational failures, such as the collapse of Enron and Lehman Brothers, exhibit a fundamental lack of understanding.<br><br>Decision-making risk (DMR) is, quite simply, the risk associated with making a decision. With each decision, there are risk variables that interact with one another to create an overall risk profile. It is this interaction that is arguably under-observed in business schools. Furthermore, it is contended that a lack of focus on this interaction often leads to poor decision-making.<br><br>In this note, we use the Bear Stearns collapse and the Maple Leaf Foods listeria outbreak as timely examples of miscalculated decision-making risk. After examining these cases, it is quite clear that the associated risks in both were quite high. This raises a number of questions. Why didn’t the decision-makers at the time realize the risks that their organizations were facing? How can business leaders learn from these failures to ensure similar mistakes are not made in the future? In particular, this note was written to answer the question: Is there a comprehensive framework that can be used to assess decision-making risk?

A model is proposed to:<ul><li>i. Understand the components affecting decision-making risk and how they interact with one another to create an overall risk profile.</li><li>ii. Assist in analyzing existing business cases. </li><li>iii. Understand how leaders can increase their likelihood of success by leveraging the model and its components. </li></ul>

• Risk Analysis
• Risk Management
• Decision-making
• Leadership
• Group Behaviour
• Analyzing Options