Dealing with Risk and Uncertainty in Business Decisions
In my work in the industry and later as a business coach, I’ve seen many situations where projects or whole companies made almost unexpectedly big losses – which in some cases led to insolvency.
When a single project was the reason, management often implemented checklists, project reviews with smaller intervals, or changed the department and the project manager. Even lessons-learned workshops were conducted. The success rate of these interventions was relatively low.
The reasons why companies or projects end up in these situations were very diverse. Mostly it wasn’t caused by inexperience – often quite the contrary. Issues like overconfidence, short-term emotion, or “we’ve handled similar situations before” were the reason fatal risks were just not recognized, or no contingencies were allocated for those events.
Especially in the process prior to making decisions – on investments, joint ventures, project proposals – we have the opportunity to evaluate risks in a systematic way. People making decisions to proceed are not always the people who will execute the project later. At the moment of signing, we even celebrate the decision.
For management, the first step should be ensuring the highest standard of psychological safety – where everybody can express their view, and where small mistakes are reported and used for improvement without blaming the individual.
Research confirms this pattern: organizations react swiftly to small, visible problems while systemic risks grow quietly in the background. Diane Vaughan’s analysis of the Challenger disaster shows how NASA knew about the O-ring flaw for years – but because every previous launch had survived, the risk was gradually redefined as acceptable. She called this the Normalization of Deviance.
Kahneman’s research adds the cognitive layer: under time pressure and excitement, fast intuitive thinking dominates. We overweight risks that come easily to mind and underweight slow-growing, systemic threats – precisely when stakes are highest.
Chip and Dan Heath’s WRAP model addresses the four core decision-making traps directly:
The pattern I see repeatedly is not that leaders lack experience. It is that organizational systems reward solving visible problems and punish the communication of uncomfortable risks. The most important question is not “did anything go wrong this quarter?” – it is: “What risks are invisible to us right now, because we have stopped looking?”
