ben jeryy

ben jeryy

A Model for Decision Making Risk (DMR)

• People across organizations must evaluate benefits and risks of decisions and act accordingly
• Need to be able to hit on weak signals
o Previous inability to complete voyages,
o Polar ice caps prevalent at the earlier stages before antartica
o Ability to spot weak signals within a system or organization is important in mitigating risk
o Ex. Difficulty some people are having paying their mortgages could have been a weak signal for the credit crisis
• DMR – a model that quantifies the risk associated with a decision option
o The model: DMR = S + 1/A * B
• S= Systematic risk
• A = Adaptability
• B = Bias
• Assignment of a number is based on subjective, yet informed judgment of relative risk
• Systemic risk
o Intrinsic risk independent of the leader or organization
o Risk Cannot be reduced below this baseline level
o External forces such as suppliers, competitors, industry, technology, ect.
o Multi level model of individual, team, and organization / system levels should be used to assess systematic risk
• a leader who balances use of knowledge and intuition is the most adaptable
o ranked from 1 – 5
1. near certain success
2. likely success
3. equal probability
4. likely failure
5. near certain failure
• bias
o overconfidence bias
• overestimating own capabilities and those of the organization or team they are operating within
o sunk cost bias
• decision makers allow past decision and costs associated with them to influence current decisions
o Recency Effect
• Overemphasizing recent events, observations and successes that clouds vision towards other potential risks.
o Bias are natural tendencies and learned behaviours that influence decision making
1. Completely rational
2. Corrective – bias forms basis for some decision making, but rationality ususally prevails
3. Cognizant – decision makers recognize their bias but make no efforts to overcome them
4....

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