Risk managers should use alternatives to heat maps to inform decision-making, according to Risk Academy’s Alex Sidorenko.
“Heat maps are no different to horoscopes,” says Risk Academy’s Alex Sidorenko. “They are just as scientific and just as useful in decision-making.”
Sidorenko believes there are better alternatives for risk managers to use. Risk managers should consider three factors, he says.
“There are three key ingredients you need to keep in mind when you are thinking of alternatives. For risk analysis to be useful, it has to happen before a decision has taken place. Not on an annual or quarterly basis, but at the time of making the decision. Whatever technique we use has to be integrated into the decision-making process.”
Sidorenko adds: “The second key ingredient is that the technique, instead of telling us how significant the risk is, should tell us how significantly risk would impact on the actual decision… Instead of talking about risk levels, we should measure how this uncertainty affects our objective.”
He adds: “The final ingredient is that risk analysis techniques should allow you to make changes to that decision before you actually make the decision.”
He says “a dozen” risk analysis techniques that satisfied his three criteria.
“There are basically two buckets of techniques. The first is a technique to better understand the nature of risk, to make a decision on how to manage it. Modern-day risk managers are using that 95% of the time.”
“The second group of techniques is much more useful,” Sidorenko added. “They measure how uncertainty and risk affects a decision, budget, schedule, programme, or anything that the business is thinking about.”