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Expert Reference Series of White Papers

This white paper provides an outline of how to judge the quality of decisions by analyzing how effectively the risks associated with various options have been analyzed.We begin with a definition for quality control in decision making. This definition is then related to the four steps of the decision making process and finally to the three types of error (risk) that occur in each of the four steps. | Global Knowledge Expert Reference Series ofWhite Papers Decision Analysis and Risk Management Two Sides of the Same Coin 1-800-COURSES www.globalknowledge.com Decision Analysis and Risk Management Two Sides of the Same Coin Brian Denis Egan Global Knowledge Instructor MBA PMP Introduction Every decision involves an analysis of possible future events costs outcomes markets etc. and selection of a choice among competing alternatives. Making a decision is making a selection. Decision analysis is the process of dismantling a decision so as to determine the inputs and processes that went into arriving at a decision. Risk management is managing preparing for future uncertainties. Uncertainties are risks. They are the unknowns associated with future events. The decisions we make today create the risks that we must manage tomorrow. Risk management and decision analysis are effectively the same thing. They both involve the dismantling of choices so as to understand the uncertainty of outcomes associated with particular options that have been or could be made. It follows that high quality decision making serves the purpose of risk management. If our decisions include a thorough consideration of uncertainties then future risks are simplified or minimized. But what is a high quality decision How do we judge decision quality This white paper provides an outline of how to judge the quality of decisions by analyzing how effectively the risks associated with various options have been analyzed. We begin with a definition for quality control in decision making. This definition is then related to the four steps of the decision making process and finally to the three types of error risk that occur in each of the four steps. The paper concludes with an example of how methodical decision analysis leads to an understanding of the degree of risk in a decision. Defining Quality Every decision is a balance between what we believe to be true and what we are forced to predict. Every decision