1.1. Topic Background
Decision-making is the process of generating alternate plans of action and choosing the appropriate measures for each situation (Galli, 2018). There are two essential parts to the decision-making process:
- 1.
Identify alternative measures to take, which means that the most ideal solution may not exist or be identifiable
- 2.
Decide on a suitable alternative, which means that there is a process of accepting and/or rejecting certain options
More specifically, economic decision-making involves making financial business choices. Using some accounting data is required with any economic decision and it is typical for data to come in the form of financial reports. When using accounting data to make economic decisions, one must understand the business and economic environment in which accounting information is produced. Additionally, one must be willing to apply any necessary time and energy to decipher accounting statements. There are two types of economic decision-makers: internal and external. Internal decision-makers are individuals working within a company and making choices on its behalf, whereas external decision-makers work outside of organizations to make decisions for the company (Galli, 2018; Galli, 2017).
Recent news features major corporations in the financial sector and non-financial institutions for failures relating to risk management. These failures were often rooted within poor leadership, as management boards did not fully consider the risks taken by the companies. Such risks include recklessly engaging in risky investments or utilizing faulty risk management systems (Galli, Kaviani, Bottani, and Murino, 2017; Sun et al., 2014). Some examples of corporate mistakes derived from failed risk management systems are environmental disasters (the Water Horizon and Bhopal) and accounting fraud (Olympus and World COM).
The importance of a comprehensive and effective risk management system cannot be over-emphasized. The management of corporate entities should consider various risks in the process of making decisions to determine the most optimal process of business operations.