In its simplest form, risk, from an operational perspective, is a mathematical equation that focuses on the simple concept of risk vs. reward. When we analyze how risk mitigation and risk tolerance effect business decisions, we are asking the decision-makers within the organization how much risk (or chance) they are willing to take versus the perceived rewards that could be obtained through a positive outcome of the decision being made. These are simple formulas and in a perfect scenario these two factors (risk mitigation and risk tolerance) would provide all of the information necessary to make major operational decisions. Unfortunately, like everything in life, it just isn’t that simple.
When assessing risk, it is extremely dangerous to use a simplified approach to decision making, because the fact is that risk must always be analyzed on an individual basis. While risk tolerance and risk mitigation are always factors in analyzing risk within...
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