Organizational decisions must adhere to ethical behaviors and acceptable business practices by identifying moral issues, considering all stakeholders, and Balancing the right action, consequences, and character. Risk tolerance is the organization’s willingness to take risks for desired outcomes influenced by critical thinking and business ethics (Chan et al., 2020). Influenced by basic critical thinking, radical changes insufficient and inaccurate risk evaluation are common pitfalls in determining risk tolerance.
First, radical changes in the situation or market environment may affect the value of risk tolerance. For instance, when determining risk tolerance when making a long-term investment decision, critical thinking is necessary to identify the worst possible situations beyond control, such as insolvency or hyperinflation. While critical thinking can accurately determine initial risks, it is limited in evaluating residual risks hence a pitfall. Ultimately, the pitfall of radical changes is to some extent determined by basic critical thinking.
Another cause of pitfalls when determining risk tolerance is insufficient risk evaluation during critical thinking. Overlooking factors that influence the accuracy of risk tolerance potentially result in a pitfall in ethical decision-making. According to Vidgen et al. (2020), critical thinking should be comprehensive to not only assess types of hazards associated with risks but also the potential contributing factors. For example, overlooking the risk of a power outage when evaluating the risk tolerance of a large-scale construction operation is subject to pitfalls in case of power loss. However, applying essential critical thinking would identify the risk and employ a disaster recovery plan for installing backup generators. Therefore, basic critical thinking determines the depth of risk assessment to mitigate pitfalls of insufficient risk evaluation when determining hazard tolerance.
Finally, basic critical thinking influences the accuracy of risk tolerance indicated by the difference between the actual and expected outcomes. Basic critical thinking is the ability to critically analyze risk outcomes through objective consideration (Xafis et al., 2019). Since many factors influence the difference between real and expected outcomes, constant re-evaluations of risks are necessary to mitigate the pitfall of inaccuracy in determining risk tolerance. A common pitfall of overlooking the significance of regular risk analysis is determined by critical thinking and is resultant in unethical decision-making.
Notably, uncertainty or poor awareness of risk tolerance is a dimension that implicates ethical decision-making. Business decisions influencing stakeholders or the general society have a moral obligation to mitigate uncertain outcomes. Limited knowledge of the subject matter results in unethical business decisions aimed at mitigating risks. For instance, a pharmaceutical company introducing a new drug may, without its knowledge, have conducted inconclusive research regarding side effects affecting the health of the general public. The precautionary principle is an appropriate measure the pharmaceutical company can implement to mitigate the environmental and human hazards resulting from uncertain evidence or knowledge (Xafis et al., 2019). However, the ethical dimension of limited knowledge differs from ignorance of the probable adverse outcomes dimension of risk tolerance.
Distinct from uncertainty from limited knowledge, ignorance of probable adverse results ethical dimension when evaluating risk tolerance is foreseeable and containable. Ignorance is caused by resentment of available knowledge or facts influenced by attitudes. Overlooking a probable outcome by ignoring available knowledge risks unethical business decisions. Therefore, ethical business decisions feature the inclusivity of available knowledge to limit uncertainty of risk of tolerance. Considering the threats are foreseeable and can be mitigated, the ignorance of probable adversities differs from the limited knowledge ethical dimension.
References
Chan, H. F., Skali, A., Savage, D. A., Stadelmann, D., & Torgler, B. (2020). Risk attitudes and human mobility during the COVID-19 pandemic. Scientific Reports, 10(1), 1-13. Web.
Vidgen, R., Hindle, G., & Randolph, I. (2020). Exploring the ethical implications of business analytics with a business ethics canvas. European Journal of Operational Research, 281(3), 491–501. Web.
Xafis, V., Schaefer, G. O., Labude, M. K., Brassington, I., Ballantyne, A., Lim, H. Y., & Tai, E. S. (2019). An ethics framework for big data in health and research. Asian Bioethics Review, 11(3), 227-254. Web.