Quantifying Risk: A Practical Path to Smarter Business Decisions

In leadership, many pivotal choices are not isolated. They cascade, with each decision influencing the viability and cost of subsequent investments. Last month, we explored how Decision Trees help model these interconnected choices under uncertainty.

This month, we focus on a topic that underpins every strategic decision: risk. Most organisations maintain a risk register, but in many cases, it is qualitative, using ratings like “High” or “Low” without translating them into financial terms. While useful for compliance, this approach falls short when leaders need to make investment decisions that balance risk and return.

Our featured article, “Quantifying Risk: A Practical Path to Smarter Business Decisions,” demonstrates how to move from a qualitative risk register to a quantitative one. This transformation enables leaders to:

• Express risks in financial terms, making them comparable to other business investments.

• Use probability distributions and Monte Carlo simulations to model uncertainty realistically.

• Prioritise risk-reduction projects using Benefit–Cost Ratios (BCR) and align them with familiar metrics like NPV.

• Incorporate correlations between risks for a more accurate view of potential outcomes.

• Apply the Efficient Frontier approach to maximise risk reduction for every dollar spent.

The result is decisions that clearly account for uncertainty, turning risk management from a compliance exercise into a strategic advantage.

Training Opportunity

To help leaders apply these concepts, we are hosting Quantifying Risk Training in Brisbane on December 2nd.
Sign-up is still open until 12:00 PM AEST on December 1st. Register here - https://www.chidecisions.com.au/435559b1-3b60-45f1-aaa3-2bb6e0c25465.

Free Resource

Our SABUDI Decision-Making Template was downloaded extensively on LinkedIn last month. We are making it available here for free to help you structure better decisions:

New Initiative: The Risk Minute

We are excited to announce The Risk Minute, a series of short videos explaining one risk concept at a time. These bite-sized insights will help you strengthen decision-making without overwhelming your schedule. Here's a sneak peek exclusive for our subscribers. Follow us on Instagram, X, YouTube and LinkedIn - https://www.chidecisions.com.au/about.

Looking Ahead

Our upcoming feature articles will cover:

• How to Make a Good Decision – Applying the SABUDI Framework

• Dual Nature of ERM – Defence and Offence

• Application of QGN35 Guidance Note for our Queensland Coal Mining customers in January 2026.

If there is a topic you would like us to explore, reply to this newsletter or email admin@chidecisions.com.au.

Until then, keep an eye out for moments when you are about to make a decision and ask: Have I accounted for uncertainty?

Cheers,
Arthur