When we analyze how risk mitigation and risk tolerance effect business decisions, we are asking the decision-makers within the organization how much risk (or chance) they are willing to take versus the perceived rewards that could be obtained through a positive outcome of the decision being made. These are simple formulas and in a perfect scenario these two factors (risk mitigation and risk tolerance) would provide all of the information necessary to make major operational decisions. Unfortunately, like everything in life, it just isnt that simple.
When assessing risk, it is extremely dangerous to use a
simplified approach to decision making, because the fact is that risk must
always be analyzed on an individual basis.
While risk tolerance and risk mitigation are always factors in analyzing
risk within the decision making process; other major factors also need to be
considered; such as:
It is necessary to determine
exactly what the organization wants out of the project and create different
points of exit. This not only forces the
company to take a more in-depth look at the project, but also forces the
company to continuously (throughout the project) review and analyze the project
to determine progress.
In a perfect world the formula for determining risk and
using that determination to make decisions would be extremely simplistic. However, in the real world there are numerous
factors that must be included in the risk formula to determine what type of
decision should be made in different situations. It is vital that the decision makers within
an organization are aware that risk is ever-changing and looking at it from a
vacuum is in itself highly risky behavior.
By focusing on different factors in addition to risk mitigation and risk
tolerance decision-makers place them in a better position to gain information,
a better position to conceptualize the goals and the threats of a particular
decision, a better position to see the decision from multiple scenarios, and
most importantly a better position to make decisions. This will ALWAYS be in the best interest of
the organization; and that is what risk analysis is always about.
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