Psychological Foundations of Supply Chain Risk Management

Population statistics may be useful in overall characterization of risk, but ultimately, as Zuckerman (2007) notes, the way that risk is experienced is a matter of subjective assessment as represented in individual perception. In a managerial context, it is aggregation and interaction of these individual assessments in relatively small (at least as compared with society) organizational groups that drives business strategies and adjustments at the tactical level. Thus, organizational risk management responses are a function of coordination of subjective perceptions at a level sufficient to gain coherence in the responses from key employees. Of course, supply chain risk management often involves coordination of responses requiring such coherence at the level of inter-organizational responses. While the emerging literature in supply chain risk management focuses on types, magnitudes, and appropriate responses to risk at the organizational and inter-organizational level, this chapter will focus on the roots of perceived risk in the psychology of critical persons because detection and assessment of risk still requires thinking, judgment, and decision making by individuals.