Decision Making In Risk Management (Essay Sample)

DECISION MAKING IN RISK MANAGEMENT NAME OF STUDENT NAME OF SCHOOL SUBMITTED TO DATE Decision making in risk management Introduction Decision making associated with risk management should primarily focus on identification, quantification and absorption of possible risks. Decision making plays an important role in the success of an enterprise as it dictates the operations and procedures with which an organization’s activities are conducted. ”Decision making is one of the most central processes in organizations and a basic task of management at all levels." Li, (2009). Decision making process should involve two or more individuals as this enhances critical approach and wider view of different aspects as compared to individual decision making. "Decision making is certainly the most important task of a manager and it is often a very difficult one." Taghavifard et al (2009). Organizations should develop approaches to be used in risk management as this reduces risk exposure and possibly eliminate most of the risks. Management should from time to time review organizations procedures so as to monitor the level of exposure to risk restructure their patterns of works in ways that maximizes productivity. This also enhances achievement of set goals and objectives. Conditions that Influence Decision Making Management make decision in consideration of the three major conditions which include: certainty, uncertainty and risk. Risk and uncertainty are usually considered as the most complex and unstructured conditions faced by managers. Under conditions of certainty, the manager has all the relevant information about the situation under which the decision is being made. However, the approach is challenging while considering the best alternative and making the right decision for the best solution. According to Taghavifard et al (2009), "Business decision making is almost always accompanied by conditions of uncertainty. The more information the decision maker has, the better the decision will be." In uncertainty condition, the decision maker has absolutely no knowledge even on the possibility of occurrence of an event in any nature. The decision therefore in such a situation is solely dependent on the attitude of the decision maker on the unknown. In risk environment, the decision maker does not have complete information. He/she might be aware of the problem and alternatives but has no guarantee of how the solutions will work. Classical decion making model The first step to be considered during the decision making process is the identification of the problem being faced by individuals which could be bounded or unbounded. "It begins with seeking to ask the right questions, continues by discovering creative answers and finishes by making sure that the chosen solution is valuable and useful." Li, (2009). All relevant factors affecting the situation should be considered in depth before making the right decision so as to enable selection of the best alternative. In such case, the decision making is viewed to be a complete environment of certainty. Alternatives should be developed under which a thorough search for the best alternative is made and best choice applied. Behavioral aspects in decion making Behavioral aspects are significant consideration in decision making process. Some of the factors influencing decision making within organizations include: past experience, cognitive biases, age and individual differences, belief in personal relevance, and an escalation of commitment. Past experiences can impact greatly to future decion making as the decion maker has prior experience on the expectation of a certain approach while applied to a situation. If a particular decision is associated with a positive outcome, individuals are most likely to use the same pattern in future decision making. Escalation of commitment and sunk outcomes also impact remarkably in decion making and are considered as unrecoverable costs. People will tend to invest a lot of effort, money and time on decision which they feel more committed. When they feel responsible for ...