Stop seeing red: How to rethink risk and unlock smarter decisions

The World Economic Forum’s Global Risks Report 2024 paints a sobering picture: 54 percent of respondents expect global instability and moderate risk in the near term, while 27 percent foresee even greater turbulence. Yet, many organisations still rely on the outdated RAG (Red, Amber, Green) status system to manage risk. A framework that, while simple, is fundamentally flawed. By reducing complex risks to colour-coded labels, it fosters oversimplification and encourages cognitive biases that distort strategic decision-making. In an increasingly volatile world, business leaders must move beyond instinctive, reactive responses and adopt a more nuanced, human-centred approach to evaluating and managing risk.

Here are three mindset-driven strategies of reframe, reflect, and recruit to help leaders move beyond colour-coded thinking, and elevate their risk management capability.

Why RAG limits strategic thinking

Colour-coding risks may feel intuitive, like the labelling on hot sauce bottles where green is mild and red is hot, but it reduces intricate issues into overly simplistic categories. The brain’s limbic system, responsible for quick emotional responses, gravitates toward such binaries, which can result in unbalanced priorities; red risks often prompt panic and immediate resource allocation, even if the situation warrants a more measured response. Green risks are prematurely dismissed as solved, leaving potential vulnerabilities unchecked.

This type of system stifles the brain's capacity to evaluate interconnections and cascading effects. It isolates risks into silos and obscures their broader context. Leaders, conditioned to respond to the loudest ‘alarm,’ may miss emerging threats or overlook subtle patterns that could inform long-term strategy.

To make better decisions, leaders must move beyond instinctive, reactionary responses to engage in deeper analysis, prioritising probability, impact, and interdependence over colour-coded simplicity.

Creating a clearer risk landscape

Understanding risks requires a broader view that connects variables, uncovers root causes, and considers future scenarios. By moving away from pre-conditioning associated with RAG colouring and engaging multiple brain regions, leaders can better comprehend risks. Three key areas in the brain can help with this:

• The Limbic System, which governs emotions, ensures decisions align with values and stakeholder concerns
• The Prefrontal Cortex, responsible for planning and reasoning, enables logical, forward-thinking evaluation
• The Parietal Lobes, which process spatial awareness, help leaders map how risks interrelate and cascade across systems.

To leverage these capabilities, leaders must reframe their approach using the three R’s: reframe, reflect, and recruit.

1. Reframe: Practice cognitive reappraisal

Cognitive reappraisal involves reframing challenges to uncover hidden opportunities. By shifting perspectives, leaders can engage the prefrontal cortex to think strategically rather than reactively.

Ask:

• What’s the story I’m telling myself about this risk?
• What alternative narratives could explain the situation?
• What opportunities could emerge from this challenge?

For example, instead of categorising a financial downturn as a red threat, a leader could view it as a chance to optimise costs, improve efficiency, or seize market share from struggling competitors. This shift encourages rational, opportunity-focused thinking.

So what? Reframing helps leaders see beyond immediate threats and identify strategic opportunities, fostering a proactive rather than reactive mindset.

2. Reflect: Cultivate emotional regulation

The limbic system’s instinctive responses can overshadow reasoned decision-making, especially under stress. Mindful reflection helps leaders regulate these emotional reactions, improving their ability to evaluate risks objectively.

Practical steps include:

• Pause to reflect. Take a moment to identify emotional triggers during risk evaluations.
• Focus on facts. Use deep breathing techniques to calm the mind and re-centre on evidence.
• Record patterns. Regularly document risks and emotional responses to uncover recurring biases.

For instance, a Chief Executive Officer facing a cybersecurity threat might initially feel overwhelmed by fear of reputational damage. Through reflection, they can shift to logical questions like, “What measures are in place to mitigate this risk? What actions would protect trust moving forward?”

So what? Reflecting on emotional responses ensures that decisions are grounded in logic and evidence, reducing the influence of fear and bias.

3. Recruit: Engage whole-brain collaboration

Effective risk management requires diverse perspectives, activating cognitive faculties across a team to uncover interconnected risks. Collaborative approaches engage the parietal lobes (the part of the brain responsible for integrating sensory information and spatial awareness), fostering holistic problem-solving.

Here’s how:

• Rotate roles. Assign team members different viewpoints, such as sceptic, optimist, or strategist, to challenge dominant narratives.
• Ask integrative questions. Explore how a risk might affect other departments or reveal new opportunities.
• Visualise connections. Use whiteboards or mind maps to chart how risks intersect across operations, markets, and stakeholders.

For example, a manufacturing delay might seem like a logistics problem but, through collaboration, could reveal gaps in supplier relationships or opportunities for closer integration.

So what? Collaboration brings multiple perspectives to the table, uncovering hidden risks and opportunities that might be missed in a siloed approach.

Rewire the risk management approach

The RAG system, while once useful, no longer meets the demands of today’s complex business environment. Its reliance on colour-coded conditioning oversimplifies challenges and reinforces biases, limiting leaders’ capacity to think critically.

By adopting the strategies of reframe, reflect, and recruit, leaders can rewire their approach to risk management. This mindset shift not only sharpens decision-making but also strengthens adaptability and resilience. Risk management isn’t about ‘seeing red,’ it’s about seeing the whole picture and uncovering the opportunities hidden within uncertainty.

Leaders who embrace this transformation will gain a decisive edge in navigating complexity, unlocking greater clarity, creativity, and competitive advantage.