Before making far-reaching decisions, you should plan to carry out a risk analysis. Depending on the decision-making situation, you determine the relevant criteria and methods for calculating your company’s consequences.
Risk analysis is a decision-making process. It is particularly necessary for far-reaching decisions that can have serious (negative) consequences for the company. Based on the decision-making process, the form in which a risk analysis should go is shown in this article.
Clarify the decision-making situation
In the first step, you have to clarify your decision-making situation, i.e., describe and delimit it as precisely as possible: What should a decision be made about? You have to think about or agree with the decision-making body on what should be decided. A decision-making situation often arises from specific reasons; there are reasons why to make a decision. Decision analysis services Houston first present and explain answers to these questions. From this, it can come up with what the decision is about. It would help if you also clarify who has to make the decision and which people are involved.
For risk analysis, you have to formulate a decision question – preferably in writing: It includes the following aspects:
- What exactly should the decision-maker decide?
- Why does a decision have to be made?
Risk analyzes are carried out primarily for decisions that are associated with far-reaching consequences. This can mean that with the decision:
- High investments are necessary,
- Later incur high costs,
- Far-reaching potential can stimulate (new customer groups, new markets),
- Many employees are affected,
- A change is introduced for many existing and important customers,
- Extensive processes are changed,
- Important processes or products influence quality and speed.
For example, it can be about introducing a new product, establishing a sales company in India, new forms of cooperation and far-reaching change projects, or the acquisition of a new production facility or a company-wide change in IT infrastructure.
Show options for action and alternatives
You can only make a decision if you have different options for action, alternatives, or possible solutions. For instance, you have to work out these and describe and explain them in a concept. The forms for possible alternatives and thus decisions are:
- You can do nothing and leave everything as is or opt for a new solution that does not yet exist.
- You have two options for action.
- You can choose one of two or more alternatives that are not yet available. This gives you several options for action from which you can choose one.
The form in which you work out and present your options for action and alternatives depends on the decision-making situation and the decision-making question. In addition, the explanations should make it clear which consequences and which evaluation criteria could be necessary for the risk analysis from your point of view.
Examples of different options for action are:
- The assembly of the products in your company has so far been largely done manually. Now there is the option of automating assembly and introducing assembly robots. You have to assess what costs this entails compared to the previous solution, what consequences this has on lead time and quality, and how the employees are affected.
- You want to decide whether you want to develop and expand the product portfolio for your company. There are several product ideas and product concepts for this. However, the resources for development and market launch are limited; You can only realize one of the product ideas. Now you want to decide which product you want to manufacture and sell in the future. The risk analysis focuses on the chances of success in the market, effects on customer relationships, and product returns.
Selection of the criteria for the risk analysis
The risk analysis shows which opportunities and risks can decision for an option bring. It can provide important information on how you can improve your solutions and options or what you need to pay special attention to in the implementation to achieve the goals; these are the success factors and the criteria for your risk analysis.
To do this, check which criteria are decisive for how the decision will turn out. How do the decision-makers determine what is a good and what a lousy option for action? The company’s goals can derive from these criteria: If the goal is to increase profits for the company, then the option that promises the highest profit is chosen. If the company is to grow, the preference lies with the courses of action that develop new customer segments. Specifically, this can mean for the risk analysis:
- You have to set the price for a new product. In this way, you influence how high the profit can be later. Depending on how you set the price, there is a risk that customers will not accept the price and that sales will decline. Therefore, the risk analysis criterion would be: To what extent can a price be enforced, and what effects does this have on sales and profits?
- High investments are required for a new production plant. This only pays for itself if the system has a high degree of utilization and does not fail. The risk is that you will not receive enough orders or that the system will cause technical problems. The risk analysis criterion is: How high is the degree of utilization for the new system? What are the consequences if the degree of utilization is below a threshold value?
Some decision criteria or parameters are fixed and more or less confident. It is challenging for others to assess what may happen in the future. This is why these “uncertain criteria” are varied within the risk analysis framework; several scenarios play their role.