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Hi, enjoy this weeks curated risk and business updates.

Effective decision-making is a critical element to any successful business. Various theories around decision-making have been developed, combining insights from psychology, economics, and management science. These theories aim to explain how individuals and organizations make choices, especially under conditions of uncertainty and complexity making them all very relevant to how large organizations manage risk.

Garbage Can Model: This model of decision-making suggests that decisions in organizations are often made in a chaotic, non-linear way. Instead of following a structured process, decisions emerge from the intersection of problems, solutions, participants, and opportunities.

Bounded Rationality: Bounded rationality suggests that individuals make decisions within the constraints of limited information, cognitive limitations, and time. Rather than seeking the optimal solution, people often settle for a "satisficing" solution, meaning a decision that is good enough.

Expected Utility Theory: This is a foundational theory in economics and decision theory that assumes decision-makers evaluate the expected utility (or satisfaction) of each option and choose the one with the highest expected utility. It assumes that people make rational decisions by considering the probabilities of outcomes and their respective utilities.

Game Theory: Game theory is the study of strategic decision-making in situations where multiple actors (players) are involved, and the outcome for one depends on the actions of others. It applies to competitive and cooperative scenarios, such as business negotiations, military strategy, or economics.

Prospect Theory: Focuses on how people actually make decisions under risk and uncertainty, often deviating from rational decision-making. It emphasizes the psychological biases and heuristics that influence decisions, such as loss aversion and framing effects. This theory is particularly useful in understanding decision-making by senior leadership, black swans, and enterprise risks.

94% of Spreadsheets Contain Critical Errors

88% of organizations use over 100 spreadsheets regularly to make important decisions; 59% employ more than 1,000 spreadsheets” for critical business processes, including sales compensation, product tracking and pricing.

A recent study has found that 94% of spreadsheets used in business decision-making contain errors, a critical vulnerability in effective decision-making.  These errors can be categorized in the following way:

Qualitative - mistakes that represent poor design and coding practice, but may not result in immediate incorrect output.

  • Development mistakes are created during development phases such as formula integrity, semantics, extendibility and poor logic transparency.

  • Operational mistakes are generated by users and can typically be managed through spreadsheet controls such as cell lock

Quantitative - Cause immediate incorrect output from the spreadsheet.

  • Mechanical - typing errors, referencing the wrong cell or other simple mistakes. Mechanical errors are frequent yet have a high detection rate

  • Logic - using the incorrect formulas or algorithms

  • Omission - data or algorithms omitted from the spreadsheet, often because the business problem is not understood. Omission errors are dangerous as they have a low detection rate.

Organizations should focus on improving the life cycle management of spreadsheets, rather than simply debugging obvious errors. Specific focus should be placed on ensuring the spreadsheet business requirements are clear and that the design follows those specifications.  

Reducing decision-making risk is a big challenge for all businesses - reducing preventable errors found in spreadsheets is a way to see an immediate improvement in critical business decision-making.

Request more information on decision-making risk, DelCreo’s Risk Universe and risk assessment services.

As a reminder, here are our Risk Universe categories that we leverage to tackle and understand risk which include:

  • External Risk

  • Governance Risk

  • Strategic Risk

  • Product Risk

  • Business Operations Risk

  • Legal & Compliance Risk

  • Financial Risk

  • Technology Risk

We leverage our understanding of risk maps and risk universes to better advise our clients in strategic business decisions and to optimize the management of risk throughout the enterprise.

Weighing the Risks

Weekly Highlights

Three Key Ideas:

  • The widespread presence of errors in 94% of spreadsheets used for business decision-making poses significant risks to corporate IT infrastructure, leading to operational mistakes, financial losses, and potential business interruptions.

  • AI Risks in Influencer Marketing: The use of AI to analyze influencers’ political content creates economic risk by influencing ad spending decisions, as brands attempt to avoid controversial figures during sensitive periods like elections. This can result in disrupted advertising strategies and potential financial losses.

  • The strategic risk of AI profitability being concentrated within a narrow group of upstream firms threatens to leave other sectors behind, potentially creating imbalances in productivity gains and slowing widespread adoption, which could hinder overall economic growth.

  • The transition to post-quantum cryptography introduces significant product risks, as companies must integrate new encryption standards to protect against future hacks, but improper implementation or delays could expose organizations to critical cybersecurity threats.

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