Effectiveness of Risk Assessment Models in Business Decisions: Reinforcing Knowledge

Introduction

Life has ever been constantly evolving generation after generation from, ice age to information technology age only because, mankind has been clinical with his decision-making skills in each and every generation with a constant vigour to survive and thrive. Decision making has been an impetus within all the matters in this futuristic world, throwing some light into what makes decision making so important, is the presence of uncertainty of outcome or to be precise “Risk” that is inherent in every decision. Decision making is all about making the right choice in the face of uncertainty, especially in the context of present day organizations, where all the decisions involve certain degree of risk from various spheres of business activities. Risk based decision making is the cult now-a-days that is catching up like a wildfire in every organization out there.

For an organization to take effective risk-based decisions, its risk management approach has to be strategically laid out with futuristic view of various risks effecting gamut of decisions within the organization as well as extrinsic to it. Risk management is essential for every organization, keeping the fact in mind that risk is ubiquitous and people are acquainted of the damage that it can cause if a decision goes wrong. But still organizations are optimistic never than before while it comes to making a decision, as all the businesses have a spectrum of risk management tools available to afford a smile in the face of uncertainty. Further risk-based decision making involves getting sufficient, relevant, timely information about uncertainty to make better decisions. “Decision-making is defined as a chosen way of conducting business among several alternatives; it is the essence of planning…” (Weihrich & Koontz, 1994). Management is a phenomenon of the 21^st century and in past hundreds of years of existence, the word management has transformed the way we view economic and social content with a simple decision making parameter as its core (Puseljic et al., 2015). Raghunath et al. (2017) articulated in their article that greater the organizations grow with time there lies a greater responsibility to deal and faceoff with ubiquitous uncertainties in various forms. There are innumerable internal and external risk factors which can influence Business decisions in organizations, which demands the need for risk assessment models to mitigate inefficiency in decision making. Risk is, basically possibility of financial loss at any point of time. It is used as a synonym of uncertainty and refers to the variability of returns associated with an investment decision (Powell, 2011). As the projects may be independent or mutually exclusive, it is crucial to use analytical techniques in accordance with each specific situation and decision. The existence of uncertainty makes decisions irrelevant and irrational, hence many financial decisions are taken in presence of uncertainty, and thus the measurement and management of risks become increasingly important. Decisions taken at the present time have their results conditioned by future events and may influence the later outcomes in the form of potential gains or losses (Bell, 2009).

Merna & Al-Thani (2007) expressed that due to the high degree of the changes in the global ventures and environment, more and more companies are acknowledging the need and importance of the risk management in their enterprises. The global research concerning the implementation of the risk management shows that in spite of certain problems the companies try to implement the risk management into the managing business decisions.

As clearly interpreted by Junkes et al. (2015) risk scenarios are discrete occurrences that affects a project positively or negatively, while uncertainty occurs when there is no sufficient and clear information available to decision makers, reducing confidence on evaluating alternatives and their risks, thus complicating decision-making

Evidently risk in its basic sense, is the possibility of financial loss or, more formally, the variability of returns associated with a particular asset (Gitman, 2010). Decision-making based on risk (Risk-Based Decision Making - RBDM) is essential for an effective and efficient management of projects (Wang & Yuan, 2011).