Developing a framework of institutional risk culture for strategic decision-making

Abstract

Although practitioners have long sought to define risk culture, its role in strategic decision-making is not yet well understood. This paper addresses this gap from an institutional theory and organisational culture perspective. Findings from a qualitative study in the automotive industry provide insights into the importance of risk culture in strategic decision-making. Based on the findings, we propose a framework for understanding the different factors of risk culture that affect strategic decision-making. This yields insights into the facets of risk culture and highlights the role that both the board as well as management play in driving a risk culture and fostering the values and behaviours required for enabling risk appropriate strategic decisions. Management may use the findings to define a culture that will drive risk-appropriate behaviour, create alignment for the organisation, allow for transparency and accountability and foster improved strategic decision-making.

The Impact of Strategic Leadership Styles on Financial Performance in Libyan Oil and Gas Industry

“…Strategic decision-making is very useful when dealing with poorly structured problems for which there are no clear solution procedures. In the academic discipline, the role in strategic decision-making is not yet completely understood (Osman and Lew, 2020). Strategic leaders have an impact on companies through their decisions (Hambrick & Mason, 1984).…”

Exploring the indirect links between enterprise risk management and the financial performance of SMEs

“…A risk management culture is critical to an organization’s strategic decision-making and requires the active involvement of the board and senior management. Top management shapes risk culture through leadership, transparent communication, and risk management using appropriate processes and resources (Osman and Lew 2020 ).…”

Who is calling the shot? Risk culture experiments on bi-level governments

“…Governmental risk culture can be reflected as a daily (almost automatic) continuous consideration of risk in every step of the policy-making process by civil servants; it is regarded as a common belief in risk-taking conditions by decision-makers (Bui et al , 2018; Power et al , 2009). Broadly speaking, risk culture is a result of people’s relationships or systems and structure of the firm; it is composed of both structural aspects and human aspects (Osman and Lew, 2020). Risk culture can also be defined as mutually agreed beliefs of decision-makers regarding a decision that requires risk-taking, and thus, it is related to its business risk tolerance (Bui et al , 2018).…”

“…However, risk culture is difficult to measure (Sheedy and Griffin, 2018). While there is an effort by researchers to bridge risk culture implementation and application, such as Osman and Lew's (2020) framework of risk culture for decision making, Sheedy et al (2017) on financial institutions and the classical framework brought out by Bozeman and Kingsley (1998), there is still a disconnection and only a handful of research on risk culture and its application in the general planning, policy-making and budgeting process of a government. Because of this, the authors initiated an experiment to capture risk culture practice and how it will impact the effectiveness of risk management (EORM) in both governments.…”