Risk management reconceived: reconciling economic rationality with behavioural tendencies

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Ruth Murray-Webster
Sergio Pellegrinelli


Risk management practices as described in many leading texts feel counterintuitive to many practitioners and are frequently ignored, despite their being evidently logical and potentially valuable. Such practices are often conceived as a remedial post-planning, audit activity. This paper proposes an approach for dealing with project uncertainty and risk, grounded in economics and taking into account behavioural biases and heuristics. The proposed approach is argued to be an enhancement to conventional risk management practices and one that can serve organisations better while also aligning to experienced practitioners’ intuitive approaches. In particular, we argue: that the focus should be on adding economic value rather than reducing risk per se; that opportunity gain/loss is a superior metric for gauging potential impacts of risky events; and that creation of real options should be emphasised as part of the repertoire of generic response actions to risk. The approach also supports the integration and handling of uncertainty and risk as part of holistic project planning and control.

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Author Biographies

Ruth Murray-Webster, Cranfield School of Management

Ruth Murray-Webster has an MBA from Henley Management College and is conducting research into how organisational routines are intentionally changed for a DBA at Cranfield School of Management. She is an organisational change consultant and a Visiting Fellow at Cranfield School of Management. Her professional interests and experience centre on the competencies required for individuals to manage change and the culture of organisations as they seek to improve and advance. Ruth has a keen interest in how human factors influence risk management and her published work, co-authored with David Hillson, include Understanding and managing risk attitude and Managing group risk attitude, published by Gower in 2005 and 2008 respectively.

Email: ruth@lucidusconsulting.com


Sergio Pellegrinelli, Cranfield School of Management

Dr Sergio Pellegrinelli has a BSc in Econometrics, and an MSc in Economics from the London School of Economics, an MBA from London Business School, and a PhD from Cranfield School of Management. He is an experienced consultant specialising in strategic management and organisational change, and is a Visiting Fellow at Cranfield School of Management. His consulting work ranges from analytical consulting interventions to tailored management development. Sergio has facilitated strategy formulation processes and has assisted project teams to design and implement complex strategic initiatives. Sergio has published research on strategy development and implementation, the role of consultants and programme management. His book Thinking and acting as a great programme manager was published by Palgrave Macmillan in 2008.

Email: sergio.pellegrinelli@cranfield.ac.uk