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Evaluating Risk in the Decision-Making Process of a Business Leader

Considerations should be made in evaluating risk for the business and the business leader. Decision-making process guidelines for business leaders and owners arereadily available. Below is a summary process from Chron that is pretty typical. These are excellent guidelines, but I would like to dig deeper into evaluating risk.

 

Perhaps your problem pertains to growing your organization. Perhaps you are considering investments into new team members, equipment, technology, marketing or even a business acquisition. Maybe your problem pertains to an operational issue like team member performance, operational efficiency or the financial condition of your organization. How do you go about making these critical decisions?

 

Summary of the Decision-Making ProcessC-logo for blogs shared on LI

  • Identify the problem requiring a decision
  • Gather information to clarify options
  • Brainstorm potential solutions
  • Weigh the alternatives
  • Choose an alternative
  • Implement
  • Evaluate the outcomes

 

Evaluating Risk for the Business

In the area of weighing the alternatives, the process says to compile a list of the pros and cons of each potential solution and select the option you feel has the best chance of success at the least cost. They also point out that the “do-nothing” option always exists. This is good general direction and I’ve assumed some math was involved in developing the pros and cons.

 

Embedded in this evaluation, perhaps it is part of pros and cons, should be a couple of more questions. We are generally pretty good at laying out a plan and evaluating based on everything going nearly right. We can answer what happens when everything goes right, but what if everything goes wrong and the chosen alternative is a real bust?

 

This possibility, even if you think it is small, should be evaluated to see what the impact is to your business. Can your business survive a “wrong” decision? Will you still be in business? Do you need to choose a less risky alternative? What is your tolerance for risk?

 

Evaluating Risk for the Business Leader

Evaluating risk for the business is usually a financial matter. Evaluating risk for the business leader can include financial matters, but it is often an emotional matter. Some folks just can’t stand to fail and a wrong decision sends them into a deeply unhappy state. Others might feel their reputations are at stake or a team member’s feelings may be hurt. Some business leaders and owners rely consistently on the “do-nothing” alternative.

 

The issue is that there is also risk in doing nothing. Doing nothing does not mean that all other business conditions will remain the same. The decision-making process begins with identifying problems. Consistently doing nothing will not solve the problems.

 

We must understand that every decision will carry some risk. We can do the best we can to mitigate those risks and put the odds of success in our favor. However, perhaps an emotional check on risk-taking is in order before diving into the decision-making process?

 

A Note from an Industrial Engineer

I am reminded of an excerpt from my old Industrial Engineer’s handbook: Risky decision making is at the very heart of industrial engineering because of the nature of this engineering discipline. Design, operation or management activities all require decisions where the future is unsure. As we see through the window of the future but dimly, we must be prepared to make the most of our observations.

 

Please contact me for assistance in decision-making.