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An idea to help drive effective risk management

The concept discussed in this article may help drive effective risk management.

drive effective risk managementI have been thinking about how an organization can obtain assurance that risk (what might happen) 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 all decision-makers to consider all the potential consequences of their 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 taken.

Looking at whether the organization’s risk appetite (a concept that frankly doesn’t work well for all sources of risk) 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; it will therefore affect their compensation and career progression.

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

I did find one sample performance appraisal form on the Internet that we can look at. It has a section on decision-making:

Decision making

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

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

We can build on this.

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.

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

What do you think?

I welcome your comments.

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Norman D. Marks, CPA, CRMA

Norman D. Marks is an Author, Evangelist and Mentor for Better Run Business, as well as an OCEG Fellow and Honorary Fellow of the Institute of Risk Management. Mr. Marks has been a practitioner and thought leader in internal audit, risk management, and governance for a long time. He has led large and small internal audit departments, been a Chief Risk Officer and Chief Compliance Officer, and managed IT Security and governance functions. Read more
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