Businesses are made by the decisions they make daily, from complex to minute. In some cases, it only takes one wrong decision to threaten the survival of an organisation. Countless pages could be written of businesses that became a part of the corporate graveyard due to failings in their decision-making processes.
“To err is human” but errors in decision-making is something that can be improved, for the business benefit. Risk management is one-way organisations can start thinking and behaving differently when it comes to weighing the outcomes of strategic decisions and setting the stage for improved decision quality. It is even a principle outlined in the international risk management standard, ISO 31000, “risk management is a part of decision making”.
Let’s look at some ideas for sound risk management to immediately improve the decision quality in your organisation.
Removing Cognitive Biases
Cognitive biases are systematic mental errors which place limitations on how we view the world around us, leading to errors in decision making. Risk management plays an active part in removing these mental errors from decision making with a two-pronged approach.
First, when risk management is injected into decision making processes, objective data is leveraged more heavily than subjective information. This helps to bring accurate information to the table to ward off “gut-felt decisions” or intuition from past experiences that can lead to poor decision quality. Second, risk management processes encourage open discussions on current and emerging risks. This helps to bring cognitive biases to the forefront where they can be identified, addressed and discarded, leading to improved decision quality.
The risk management process helps decision makers explore and select the best alternatives related to a strategic choice. The overall goal is for business leaders to consider all the potential consequences of a decision – or all decision alternatives for that matter – before making an informed and intelligent judgment. Exploring alternatives has an organic way of helping stakeholders think long-term on how a certain decision will play out versus the other options on the table.
These mental processes help to reduce decision errors while increasing insights that improves decision making even more. When a risk assessment is conducted on each option for a decision, quality improves, which increases the probability of more welcomed outcomes.
Increasing Situational Awareness
As business leaders go through the risk management process, the information collected can be used to assist with decision making, leading to improved decision quality. If all stakeholders involved in making a strategic decision are aware of the risks, this will help steer the decision in a direction that is more calculated. This can also be used as a strategy to always ensure decisions are fitting within the risk appetite set by leadership and internal departments.
As every decision comes with risks of failure it is important to understand what less than ideal outcomes could result. Decisions should be made to ensure the company stays on the path to achieving the intended objective or goal. In the end, risk management gives leaders the tools to increase situational awareness of the world revolving around a specific decision.
Businesses are constantly searching for ways to improve decision making to optimise performance and reach strategic goals. Risk management is a value add-on that increases decision quality through open discussions on risk sources that can lead to goals not being achieved. With COVID-19 bringing risk management into the spotlight, the time is now to leverage these processes to take decision-making to a new level.