Ceteris paribus is a useful phrase for isolating specific concepts in academia. It is also the phrase that allows U.S. Treasury Secretary Timothy Geithner to state sincerely in front of cameras that there is no real threat of a double-dip recession. We can all agree with a wink and a nod to market projections based on recent trends while implicitly dismissing any potential volatility ahead…given all else being equal.

Unfortunately, this mentality carries over to business planning as most executive decision makers still prefer to set corporate strategy on a single scenario. Perhaps a “level of certainty” is added to establish an appropriate level of anxiety associated with a final decision. Inevitably, the strategic course gets derailed by a surprising turn in the business environment.

Alice Underwood, Executive VP, and David Ingram, Senior VP of Willis Re Inc., recently released an excellent study of this risk stance phenomenon. They note there are four dominant risk personalities that characterize management styles: Maximizers, Conservators, Managers, and Pragmatists. These styles may change throughout a business cycle, but rarely does the timing of a change in risk strategy correctly align with the four dynamic business environment conditions of boom times, recession, uncertainty, and moderation.

The time has come for business managers to break away from reliance on static business outlooks and instead incorporate scenario analysis with dynamic modeling in business decision making processes. Managers should consider risk volatility factors leading up to a decision and monitor them to consider course corrections as business conditions change.

Strategic management processes including scenario based planning and risk management analysis have struggled to take hold in the general market, but there are several reasons to believe broader implementation will now be more successful.

1. Studies like the Willis Re analysis provide a structured context for labeling cultural challenges and point to solutions that can begin to break down a single risk strategy approach.
2. Business schools and executive training programs are helping to spread basic risk management knowledge to managers across industries and corporate functions.
3. Business consultants are advancing risk-aware decision making and scenario planning while recommending organizational roles and processes for improving risk management practices.
4. Information technology advances are providing the necessary infrastructure for data collection, business analytics, and decision rules with the algorithms necessary to handle complex modeling for enterprise risk management.
5. Actuaries are trumpeting the use of their decision science beyond its traditional application in insurance and pensions to support broader business analysis.

These factors, among others, are why we can expect new management trends that increasingly leverage insights from corporate risk management programs as dynamic scenario analysis and real-time monitoring gain ground.

Not being a classical Latin scholar, I will use the more pedestrian Pig Latin to proclaim it is time to ixnay ceteris paribus and build dynamic modeling and risk scenario analysis into your corporate risk culture today.