Understanding Risk Management In Strategic Decision-Making

Understanding Risk Management In Strategic Decision Making

Managing risks in any organisation is crucial to its success. Cybersecurity threats, environmental threats, and supply chain problems pose a significant threat to businesses today. Companies that ensure to identify the risks within workflow systems as a part of their strategic decision-making process excel in output and also have a competitive edge over others in the sector. Moreover, such businesses are also better equipped to handle uncertainties arising in an ever-changing business environment. 

The expansion of businesses on a global platform and the entry of new-age technologies highlight the importance of risk management in the decision-making process. If you want to gain an edge over others in the highly competitive business environment today, enroll yourself for the Professional Certificate Programme in Strategic Management from IIM Kozhikode. Professionals gain from transformative course modules offered through flexible learning methodologies. 

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Understanding Risk Management

Table of Contents

The processes utilised in recognising threats and challenges within an organisation are cumulatively called risk management. These threats and challenges include but are not limited to, cyber threats, supply chain obstacles, environmental calamities, and legal threats. Any business that adopts the above approach is capable of identifying the hazards that can cause massive damage to organisational outcomes. Thus, it is important to identify the risks and manage them for optimum chances of success. However, it is possible to anticipate the risks that can arise and mitigate them through a proper procedure. 

Stages of Risk Management

The framework includes various stages, depending on the approach the organisation chooses. It can also prepare the workforce to become more agile and face the challenges head-on. 

The general stages include:

  • Identification of the Risks

This stage involves identifying risks for a more positive experience. The whole team can be a part of the process and work towards solving the same together. The company gains from the collective knowledge of the entire team and brainstorms and refers to historical data to identify impending risks. This process also fosters team communication and learning. 

  • Assessment of Impending Hazards

Once the team identifies the risk, it is time for assessment and analysis. It is time to estimate the probabilities of the risks arising so that the company can work out strategies to mitigate them. Assessment is possible through multiple methodologies like the qualitative approach, quantitative approach, effect analysis, or the Monte Carlo simulation method. 

There can be several instances, like possible loss of revenue, delay in production, and disruption due to the workforce. By putting each risk under scrutiny, you will be able to uncover common issues that can apply to multiple projects. This helps in implementing the same mitigation techniques in the time to come. 

Risk Management Process


  • Mitigation of Risks

This stage involves the development and execution of risk reduction strategies. Prioritisation is also important at this stage, according to its likelihood of occurring. This step also gives the team a flowchart to focus on. It also helps in identifying practical solutions for each risk. This way, one can enforce and deploy the measures according to the severity of the risks anticipated. Use existing resources to create a treatment process and put every strategy on record for future use. 

  • Monitoring the Risks

It is extremely crucial to maintain a risk register to record the developments. As risks change according to the approach taken by the organisation, one should record the same for all to see. This way, everyone involved is aware of the workflow and processes.  

  • Communication of the Risks

Finally, it is time for communication of the process to everyone who is concerned with the damages. All stakeholders should be aware of the risks anticipated, management strategies, and the process. This leads to trust and confidence from all who might get affected if anything goes wrong. 

What is Strategic Decision Making?

An effective risk control and assessment process in an organisation drives better decision-making at all levels. It includes decisions from the leadership and board of directors down to individual managers at each level of the hierarchy. No matter what the domain is, risk-aware decision-making helps organisations to utilise the available resources to their full capacity. 

Without anything to look forward to, risk assessment and mitigation remain baseless and futile. Most successful organisations combine risk management processes with decision-making to succeed in an ever-changing business environment. In this context, it is worth exploring what strategic decision-making covers. 

Strategic decision-making is the process of developing and implementing actions that will influence the future welfare of the organisation. These actions often include decision areas concerning organisational change, new product or service launches, compliance, licensing, and customer experience. Moreover, it is closely linked to strategic planning for the organisation.

Why Should Firms Use Risk Management to Drive Decision Making?

Multiple reasons highlight the need to use risk control strategies to drive decision-making within an organisation. 

  • Heightened Confidence

Implementing risk measurement and mitigation measures in an organisation helps in addressing possible obstacles. This allows decision-makers to formulate plans and processes that bypass the obstacles and lead to beneficial gains for the organisation. As everybody concerned has a better understanding of the situation, confidence is at an all-time high. 

  • Reduced Expenses

When the organisation is ready with risk mitigation solutions, it can avert possible financial failures. Decision-makers can also make adequate decisions to reduce operational costs and avoid delays in production and delivery. This helps in saving both direct as well as indirect expenses for the organisation. 

  • Better Decision-Making

When every person in the hierarchy is aware of possible risks and threats, it leads to better decisions for the ultimate benefit of the company. The judgements are also well-rounded and adequately accounted for. This removes the likelihood of expensive mistakes which may hamper the profitability of the organisation. 

  • Better Resource Management

With advanced information about the risks and their management, decision-makers can utilise all available resources to their fullest capacity. Management can deploy resources efficiently, thereby reducing wastage. 

  • Better Stakeholder Relationships

All stakeholders, whether external or internal, are impacted by bad choices. With proper risk assessment and mitigation techniques in place, the organisation is able to imbibe trust in all relationships. This also makes expectations of all concerned non-ambiguous, with the betterment of the company as a primary goal. 

  • Innovative Ideation

Risk identification and management allows the organisation to predict future risks and threats. This applies to new projects in the pipeline. Thus, decision-makers are better equipped to come up with new products and services while keeping their associated downsides in mind. The organisation is ready to face any obstacles that may come up with respect to new verticals. 

Ways to Incorporate Risk Management into the Organisation’s Decision-Making Process

The organisation must incorporate the techniques mentioned above into the decision-making process through a few steps. 

  • The first step involves the identification and prioritisation of risks. This helps in addressing each risk as and when it arises in the workflow. 
  • A proper mitigation plan containing the necessary strategies helps to counter the risks. Moreover, it ought to specify the role of each team member so that there is no ambiguity when the time for action comes. 
  • The business has to include the management plan in every step as devised by the management and stakeholders. It may include transfers, closures, cost reduction, or acceptance. 
  • After incorporating the plan, constant monitoring is required. It ensures that mitigation processes are being carried out as planned. It also aids in evaluation against pre-decided standards throughout the workflow. 
  • Communication and training on an ongoing basis will cement the outcomes as positive ones.

Businesses need to take into account risk handling and administration as a part of management processes. Only after doing so, it can expect new opportunities for growth and development. With adequate information on processes, risks, complete people participation, and availability of alternatives, an organisation can gain success in a dynamic environment.

Organisations must utilise all sorts of risk mitigation and resolution strategies to survive in a constantly changing and evolving scenario. Moreover, the professionals at various tiers within the hierarchy remain responsible for the deployment and measurement of outcomes.

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