Risk management practitioners often struggle with their role and contribution to decision making. Clearly, an organization needs to fend off mishaps and mitigate events that might compromise its ability to achieve its objectives. The traditional domain of risk management, avoiding mishaps with negative impact, is only one side of the coin. Pursuing opportunities with a positive contribution is also critical for success. So how can risk management enhance its role and contribution to decision making?
In this workshop we will wander a little through the landscapes of both risk management and decision science. We will touch on three crossroads of typical risk management practice and the way organizations take decisions. We will present a structured way to prepare important decisions in which we make a distinction between the how (the process steps) and the what (all the things that need to be considered). Perhaps the most crucial process step is framing – identifying the issues in play. Here we arrive at the first intersection with risk management: risk identification. When we continue our journey, we find that incorporating risk in decision making is best facilitated by quantifying them to the extent sensible and possible. We will briefly discuss some techniques to do that at this second intersection between risk and decision analysis. Yet, we will also argue that despite our emphasis on (credible) quantification, we still see a useful role for the often-ridiculed risk matrix. Lastly, at the third crossroad we take a look at the concept of risk appetite from the risk management domain and how this relates to making trade-offs in the decision domain.
We recommend to risk managers to, within their organizations, explore these and other crossroads of risk management practice and decision making. Managing threats to objectives is one thing, taking risk through visionary decisions is another. Ultimately, a full merger of risk management and decision analysis approaches may be in order, but first steps can be made through better collaboration and integration at crucial junctions.