Risk-Based Decision-Making

Risk-based decision-making is the application of risk assessments to a decision. The Canadian Conservation Institute describes an approach that identifies, analyzes, evaluates and prioritizes risks so that the results can inform what a decision-maker chooses to do. The definition appears in the Institute's ABC method of risk management.

The term is used across Canadian government risk-management, regulatory and procurement work. It is closely related to risk assessment, risk management, integrated risk management, risk mitigation and proportionality. For suppliers, its clearest procurement application is the federal framework for contractor liability.

How the Canadian Conservation Institute frames the approach

The Canadian Conservation Institute places risk-based decision-making inside a risk-management cycle. The cycle includes establishing context, identifying risks, analyzing risks, evaluating risks and treating risks. The assessment work in those steps feeds a specific decision, and that link between assessment and decision is what makes the approach risk-based.

Natural Resources Canada uses the same logic in forestry. It says risk-based decision-making requires considering significant economic, social and ecological risks before deciding on forest-management actions and investments, and weighing alternative actions against one another.

Risk-based decision-making compared with risk management

The two terms are related but not identical. The Canadian Conservation Institute separates them mainly by degree. Risk-based decision-making applies risk assessment to a particular decision. Risk management is the broader, continuing process that surrounds many such decisions.

A buyer that assesses the risks of a single contract and then sets its terms is making a risk-based decision. The same buyer's ongoing practice of identifying, tracking and treating risks across its portfolio is risk management.

Contractor liability in federal contracting

The most direct procurement use is on CanadaBuys. Its contractor liability guidance states that the relevant directive provides a framework for risk-based decision-making and for the application and apportionment of liability risks in contracts.

CanadaBuys identifies conducting risk assessments as a key element of that framework. Clients must carry out a risk assessment and follow specified approval steps when they limit a contractor's liability. The result is that liability terms in a federal contract reflect an assessed level of risk rather than a default position.

Other federal uses of the term

• Agriculture and Agri-Food Canada: its Procurement Review Board makes risk-based decisions for high-value and/or high-risk professional-services procurements and checks compliance with administrative, contractual and financial policies, as described in its professional services audit.
• Treasury Board Secretariat: federal digital-responsibility guidance describes proportionate, risk-based decision-making as balancing modernization with protection of people, data, the environment and organizational integrity. This is not a procurement-specific rule.
• Canadian Nuclear Safety Commission: REGDOC-2.12.2 requires a licensee policy supporting a risk-based decision-making process for certain site-access security-clearance decisions.

What it means for a supplier bidding on Canadian public contracts

Buyers assess risk before they set contract terms, so suppliers should read the solicitation with that in mind. Address the risks the solicitation identifies. Comply with any liability and risk-allocation clauses in the resulting contract. Provide the information a buyer needs for its risk assessment where the procurement documents ask for it.

Requirements differ between federal, provincial and defence solicitations, so the procurement documents set the specific obligations. For high-value or high-risk work, expect closer departmental review. Bid teams should raise liability questions during the question period, before the bid closes.