Reducing Risk in Management Decision Making
Risk Management for Texans Series
RLEM No. 1 August 1999
Larry D. White
Professor and Extension Range Specialist
Texas AgriLife Extension Service
Department of Rangeland Ecology and Management
Everyone makes mistakes, but some people continue to make the same mistakes year after year. The complexity of range ecosystems, human influences, market variability, weather, and individuals decision making skills results in varying degrees of risks and management success and failure. Risk is defined as the chance of injury, damage or loss, often expressed as degrees of probability. Many decision makers fail to assess the risks and determine the real cause(s) for mistakes and problems.
Mistakes will be made regardless of your education and experience because no one can accurately predict the future, but you can reduce the impact of mistakes by recognizing warning signs, by planning for such events ahead of time, having extra resources to utilize during times of crisis, etc. Natural human behavior is often the culprit, we want to believe everything will be OK, then when it does not work we blame nature or others rather than assume responsibility and improve our decision making skills.
” Management always has to consider both the present and the future; both the short run and the long run. A management problem is not solved if immediate profits are purchased by endangering the long-range health, perhaps even the survival, of the company. A management decision is irresponsible if it risks disaster this year for the sake of a grandiose future…A decision is a judgement. It is a choice between alternatives. It is rarely a choice between right and wrong….One has to make a decision when a condition is likely to degenerate if nothing is done…The effective decision-maker compares effort and risk of action to risk of inaction” (Drucker, 1974).
“Decision making always involves uncertainty, and, for this reason, the principles involved in assessing likelihood and uncertainty are an integral part of the decision-making process. The decisions that we make have implications for the future, and the future inherently involves the unknown…Research on how people typically deal with uncertainty has shown that, usually, the response is to ignore it (Hogarth, 1988). Although this may reduce the immediate complexity of a decision, it is obviously a maladaptive procedure that could lead to catastrophic results”(Halpern, 1989). Reducing risks calls for us to understand our needs, the environment around us and learn from our mistakes.