Structured risk management: filling a gap in decision analysis education

Abstract

Abstract Risk management is a standard management tool that does not generally appear in decision analysis textbooks nor is it explicitly cited as part of the standard decision-analysis paradigm. In contrast, risk management articles and books describe how decision trees can be used to evaluate specific risk management strategies. In this paper we describe a series of steps that should be a routine part of every decision tree analysis. They are designed to assess the expected value of developing a risk management strategy with regard to different aspects of uncertainty. The method is intended to trigger a focused brainstorming session to search for specific strategies to manage targeted risks. The procedure adds structure to the value-enhancing dimension of decision analysis that creates new strategies with less risk and higher expected values. The material presented here can easily be incorporated into even an overview of decision analysis in a survey class of operational research.