Numerous problems from the 2008 financial crisis to recent crashes of Boeing 737 airplanes have been attributed to systematic problems in management decision making and organizational risk management processes. The COVID-19 pandemic has further highlighted the importance of high-quality decision making and risk management for organizational survival and growth.
When facing high levels of risk and uncertainty, an organization’s outcomes, as well as outcomes experienced by others, depend on decision makers’ ability to accurately perceive the situation, other stakeholders’ perspectives, and possible future scenarios. They need to accurately determine what information is relevant and what is not. And they need to employ appropriate decision-making processes. Unfortunately, cognitive limitations, biases and subconscious decision heuristics often hinder these activities. In addition, many organizations lack strategies and methods for managing new and unexpected risks.
This course draws on insights from cognitive psychology, economics, statistics, and decision sciences to examine good and bad decision making and risk management practices. Frameworks and practices to improve decision making and risk management will be introduced. We will study the role of emotion, affect, and intuitive statistical thinking in risk decisions. We’ll look at how decisions and risk behaviours are shaped by mental models and organizational context. Decision making and risk management frameworks and approaches will be explored via case analysis, simulations, discussion, guest presentations, and a group project. Students will see the role of risk management practices in low-risk organizations such as universities, to high risk ones, like oil refineries. (Note: this is not a course on financial risk management, but rather, on individual, managerial and organizational risk management).
By the end of the course students will be able to:
- Recognize and explain how selective perception, decision heuristics, and cognitive biases, systematically affect decision making quality;
- Understand what mental models are, and their role in risk perception, decision making, and risk management behaviours;
- Appropriately apply decision analysis methods discussed during the term;
- Compare and apply various risk management frameworks discussed in the course;
- Create a stakeholder analysis and an expert model of a risk decision in order to assess multiple stakeholders’ perspectives of that decision; and,
- Apply ideas from the course to describe and analyze a complex challenge/opportunity with high levels of risk and uncertainty in order to assess past events, or to devise recommendations going forward.