two men playing chess
PHOTO: Vlad Sargu

How can an organization ensure risk is appropriately considered in decision-making?

As I have been saying for quite a while now, decision-making is where risk is taken. We want decision-makers to consider all the potential consequences of a decision (in fact, all the potential consequences for each option on the table) before making an informed and intelligent judgment. We want to know that the right level of the right risks is being examined.

Related Article: Identifying, Assessing and Evaluating Risk Is the Easy Part

A Path to Improved Decision-Making?

Looking at whether the organization’s risk appetite has been exceeded is, at best, an after-the-fact control. It should not be satisfactory to management to know only after-the-fact that a poor decision was made. So I had what might be a novel idea: Let’s drive risk management effectiveness by improving decision-making. And let’s drive effective decision-making through the performance appraisal process.

Let everybody know that the quality of each individual’s decision-making will be a significant factor in assessing their performance. Decision-making will therefore affect their compensation and career progression.

Related Article: 8 Biggest Risks for Internal Auditors in 2018

Including Decision-Making as a Performance Factor

I don’t know how many companies assess decision-making as part of the performance appraisal process, but I can’t remember it being a factor in the assessments I made and received over the years.

The Society for Human Resource Management does include a section on decision-making in a sample performance appraisal form (registration required). It reads:

Decision-Making

The ability to make decisions and the quality and timeliness of those decisions.

5. Exceptional decision making abilities. Decisions are made in a timely manner.
4. Above average decision making abilities. Usually makes sound and timely decisions.
3. Above average decision making abilities. Usually makes sound and timely decisions.
2. Needs to improve decision making and/or timeliness of decisions.
1. Unacceptable decisions and/or timeliness.

The five points work well, but we can build on this for our purposes in light of risk management. How about something like this:

Decision-Making

Makes timely, intelligent and informed decisions after obtaining reliable information and consulting with others (including the risk management function) as appropriate. Considers options and their consequences. Balances the potential for reward against potential harms and other negative consequences before making significant decisions. Complies with corporate risk and other policies and guidance and stays within established risk limits.

5. Exceptional decision making abilities. Decisions are made in a timely manner.
4. Above average decision making abilities. Usually makes sound and timely decisions.
3. Above average decision making abilities. Usually makes sound and timely decisions.
2. Needs to improve decision making and/or timeliness of decisions.
1. Unacceptable decisions and/or timeliness.

What do you think? I welcome your comments.