RISK-INFORMED DECISION-MAKING PROCESS FOR CORPORATE SUSTAINABLE DEVELOPMENT

RISK-INFORMED DECISION-MAKING PROCESS FOR
CORPORATE SUSTAINABLE DEVELOPMENT
By:
MAY 4-5 2021
DR. EMMANUEL MOORE ABOLO, PhD [Econs]—The Risk Master
Director General, The Economic Thinktank Centre Limited &
GMD/CEO, The Risk Management Academy Limited
08021003297; mail@drabolomoore.com;info@theriskacademy.org
KEYNOTE PAPER PRESENTED AT THE VIRTUAL
SUSTAINABILITY DRIVE 2021 CONFERENCE
ORGANISED BY 1Q-EXCEL, DUBAI, UAE.

OUTLINE
• RISK-BASED Vs RISK-INFORMED DECISION-MAKING
• THE RISK-INFORMED DECISION-MAKING PROCESS
• RIDM AND CORPORATE SUSTAINABILITY
• RISK-INFORMED DEVELOPMENT AND ITS CORE AIMS
• BENEFITS OF RISK-INFORMED DECISION-MAKING
• CONCLUDING REMARKS
RIDM PROCESS FOR SUSTAINABILITY 3

RISK-BASED Vs RISK-INFORMED DECISION-MAKING
▪ Risk is uncertainty that matters [ affects objectives]
▪ Risk and decision making go hand-in-hand;
▪ All decisions require alternatives or options; Decisions where there are no alternatives
cannot be described as decisions at all;
▪ Decisions are required in the face of options and uncertainties or in the face of
incomplete information and where the outcome matters;
▪ All important decisions inherently involve risk. All true decisions must be risk-based;
▪ There are all kinds of risk-based concepts: RBIA; RBS;RBP;
▪ A risk-based decision-making process provides a defensible basis for making
decisions and helps to identify the greatest risks and prioritize efforts to minimize or
eliminate them;
▪ It is based primarily on a narrow set of model-based risk metrics, and generally does
not lead much space for interpretation.
▪ Considerations of cost, feasibility and stakeholder concerns are generally not a part of
risk-based decision-making, which is typically conducted by technical experts, without:
✓ public consultation; and/or
✓ stakeholder involvement/engagement.

▪ In contrast, risk-informed decision-making [RIDM] is a deliberative process
that uses a set of performance measures, together with other considerations, to
“inform” decision-making.
▪ Decision making that considers risk as well as benefits, costs, and possibly
opportunities is known as RIDM
▪ Focus: Alternatives
▪ The RIDM process acknowledges that human judgment has a relevant role in
decisions, and that technical information cannot be the unique basis for
decision-making. This is because of inevitable gaps in the technical information,
and also because decision-making is an intrinsically subjective, value-based
task.
▪ In tackling complex decision-making problems involving multiple, competing
objectives, the cumulative knowledge provided by experienced personnel is
essential for integrating technical and non-technical elements to produce
dependable decisions.

• The past two decades have seen an evolution from risk-based to risk-informed
management approaches, in which quantitative outcomes of risk assessment are
only one component of the decision-making process, being combined with other
criteria such as:
o social preferences;
o political concerns; and
o budgetary constraints
• This change in the relationship between risk assessment and decision-making has
been driven by two main factors:
✓ Better awareness that real decisions must integrate multiple concerns, and that
outputs from risk assessment procedures often comprise significant uncertainty,
and thus cannot be used “mechanically” to derive a well founded decision; and
✓ Ongoing debate on the role of technical knowledge and expertise in decision-
making, in which the “technical rationality” of experts is seen by some critics as
disregarding the social context and citizens’ concerns (a “cultural
rationality”) in their analyses.

▪ RIDM is a structured process that assists decision-makers when faced with high
impact, complex decisions involving multiple objectives and the presence of
uncertainty.
▪ They aim to ensure that decisions between competing alternatives are taken with an
awareness of the risks associated with each option, and that all attributes of a decision are
considered in an integrated manner.
▪ RIDM is applicable for decisions that typically have one or more of the following
characteristics:
✓ high financial stakes: significant costs and significant potential safety impacts are
involved in the decision;
✓ complexity: the actual ramifications of alternatives are difficult to understand without
detailed analysis;
✓ presence of uncertainty: uncertainty in key inputs creates substantial
uncertainty in the outcome of the decision alternatives and points to risks that
may need to be managed;
✓ multiple objectives: large numbers of objectives require detailed formal analyses;
✓ diversity of stakeholders: high accuracy is needed to define objectives and derive
the corresponding performance measures when the set of stakeholders represents a
wide variety of preferences and perspectives.

▪ Throughout the RIDM process, interactions take place between and among
the following actors
✓ the stakeholders (i.e., individuals or organizations that are affected by
the outcome of a decision but are outside the organization doing the
work or making the decision);
✓ the risk analysts (i.e., individuals or organizations that apply
probabilistic methods to the quantification of risks and performances);
✓ the subject matter experts (i.e., individuals or organizations with
expertise in one or more topics within the decision domain of interest);
✓ the Technical Authorities; and
✓ the decision-maker.

RIDM

THE RISK-INFORMED DECISION-MAKING PROCESS
RIDM

▪ While most companies realize the need for RIDM, the underlying risk
management process has no real connection to the firm’s strategic
framework or methods of performance measurement;
▪ Instead, it is costly, resource-intensive, compliance-driven, bottom-up
evaluation exercise which often merely results in lists containing
hundreds of risks.
▪ Very important to link strategy, risk and performance considerations.

▪ Very important to link strategy, risk and performance considerations.

TYPICAL ROADMAP OF LINKAGE EVOLUTIONS WITHIN ORGANISATIONS

RIDM AND CORPORATE SUSTAINABILITY
• Businesses need to fully integrate sustainability and RIDM into their strategy -
not only to minimize potential losses but also to exploit new business
opportunities arising from the sustainability agenda.
• These may include:
✓ new products and services to meet development of sustainability needs;
✓ new technologies to improve sustainability or risk performance; or
✓ new business models to access and develop emerging markets and
support the creation of sustainable communities.
• Corporate sustainability encompasses three dimensions of needs, known as
the “triple bottom line”:
✓ economic prosperity and opportunity;
✓ social equity and quality of life; and
✓ ecological resource preservation.
• Corporate sustainability is an organizational commitment to achieving
competitive advantage through the strategic adoption and development of
ecologically and socially supportive production processes, products and
services and innovative human resource management practices

• It is “a business approach that creates long-term shareholder
value by embracing opportunities and managing risks derived
from economic, environmental and social developments”
• Certain risks are inevitable in order to create value through operations
and some risks are indeed precious opportunities if effectively exploited
and managed.
• RIDM provides a contextual framework for businesses serious about
taking on the challenges and opportunities of sustainable development.
• Breakthrough thinking is necessary to incorporate sustainability into
every aspect of RIDM.
• As sustainability develops in the business world, companies can
move from short-term risk-based decisions and regulation
compliance to long-term RIDM development of brand,
competitive, and operational advantage.

• Proactive sustainability initiatives are an opportunity for companies to
differentiate themselves as leaders in the industry, the environment, and
society, ensuring long - term business success.
• RIDM can protect, create, and enhance business value through
measurement and management of sustainability threats and
opportunities and also help businesses to effectively respond to the
growing expectations of corporate stakeholders.
• Integrating sustainability considerations into existing corporate systems
and processes within the RIDM framework is the most effective way to
embed sustainability into corporate business rather than creating new
systems and processes.

RISK-INFORMED DEVELOPMENT AND ITS CORE AIMS
• The World Economic Forum (WEF) and Organisation for Economic
Cooperation and Development (OECD) have identified a number of
threats posing ‘the most strategically significant risk [to development] as
a result of:
✓ probability or likelihood; and of
✓ the national significance of their disruptive consequences.
• Threats deemed to pose the most risks include:
✓ global economic and financial instability;
✓ transnational organised crime and terrorism;
✓ severe environmental change including climate and oceanic change
and natural hazards;
✓ cyber fragility and technological disruption;
✓ geopolitical volatility; and
✓ growing antibiotic resistance and pandemics

▪ These global threats present complex risks and opportunities, and each can
multiply the risks posed by the other.
▪ These threats and complex risk interactions have the potential to undermine
development gains and the achievement of the SDGs unless development
is made risk-informed and acts upon that knowledge.
▪ There are leading and increasing calls by governments, the international
development community and donors for an approach to development that
takes account of multiple threats and complex risks: that is, in other
words, risk-informed.
▪ Risk-informed development (RID) is a decision process that enables
development to become more sustainable and resilient to evolving and
complex threat and risk landscape.
▪ An RID process uses frameworks that help guide assessments of complex
threats and risks, opportunities, uncertainties and options when making a
development decision.

▪ Most critically, it pushes development decisionmakers to understand and
acknowledge that all development choices involve trade-offs – the creation of
uncertain risks and opportunities.
▪ RID allows the systematic assessment and management of multiple threats to
development objectives, and the trade-offs that will arise from choosing
particular actions, using transparent decision criteria (even if simple).
▪ It presents a clear framework articulating who has responsibility to act upon
what, with what resources, by when, and how those actions are to be
monitored.
▪ RID requires development decision-makers to act on that knowledge in order to
deliver development action that can have multiple benefits and synergies in an
informed and responsible manner.
▪ By integrating risk-based decision-making in development planning and action through
a framework of continuous learning and improvement, RID allows for sustainable
development to become a vehicle to reduce risk, avoid creating risks and build
resilience.
▪ Risk-based development decision-making embodies three core inter-related aims.

BENEFITS OF RISK-INFORMED DECISION-MAKING
▪ Aims at achieving “project” success by risk-informing the selection of decision
alternatives;
▪ Ensures that decisions between competing alternatives are taken with an awareness of
the risks associated with each, thus helping to avoid late design changes, which can be
relevant sources of risk, cost overshoot, schedule delays, and cancellation;
▪ Tackles some of the following issues:
▪ the possible “incongruence” between stakeholder expectations and the resources
required to address the risks to achieve those expectations;
▪ possible misunderstanding of the risk that a decision-maker is accepting when
making commitments to stakeholders;
▪ the miscommunication in considering the respective risks associated with competing
alternatives.
▪ Tries to foster development of a robust technical basis for decision-making by:
▪ coupling the attributes of proposed decision alternatives to the objectives that define
“project” success;

BENEFITS OF RISK-INFORMED DECISION-MAKING
▪ considering all attributes (that are important to the stakeholders) in an
integrated manner;
▪ helping ensure that a broad spectrum of decision alternatives are
considered;
▪ performing quantitative assessment of the advantages and drawbacks
of each decision alternative relative to the identified objectives;
▪ taking into account the uncertainties related to each proposed decision
alternative to quantify their impact on the achievement of the identified
objectives; and
▪ communicating the quantitative assessment of the proposed decision
alternatives into the decision environment, where it is deliberated along
with other considerations to form a comprehensive, risk-informed basis
for alternative selection

CONCLUDING REMARKS
• Developing a sustainable competitive advantage in an increasingly
uncertain environment is arguably the most challenging issue facing
businesses;
• If they are to outmaneuver competitors, organizations need to establish
the structural capabilities that can quickly assess how a changing
operating environment affects the organization's risk appetite and desired
performance level;
• While there clearly are a number of steps that organizations need to take
in order to achieve a state of RIDM, executives should take heart from the
fact that, for the majority of organizations, the building blocks are already
there; and
• Taking a risk-informed development approach allows for sustainable
development to truly become a vehicle to reduce risk, avoid creating risks
and build resilience.

RISK-INFORMED DECISION-MAKING PROCESS FOR CORPORATE SUSTAINABLE DEVELOPMENT

More Related Content

What's hot

Similar to RISK-INFORMED DECISION-MAKING PROCESS FOR CORPORATE SUSTAINABLE DEVELOPMENT

More from Dr. Emmanuel ABOLO, fica,fnimn,ficn,sirm

Recently uploaded

RISK-INFORMED DECISION-MAKING PROCESS FOR CORPORATE SUSTAINABLE DEVELOPMENT