Integration of Risk Management into Management Control System from a Pragmatic Constructivist Perspective

Abstract

The idea of the paper is to inform risk management (RM) with the pragmatic constructivist (PC) perspective, and tosimultaneously integrate risk management with management control systems (MCS) bearing in mind that the key to thePC perspective is that risk information has both subjective and objective components. The paper will (1) Show how toimprove Risk Management systems using the Pragmatic Constructivist perspective. (2) Demonstrate how to use thePragmatic Constructivist perspective to integrate Risk Management into Management Control Systems. (3) Provide acase study to apply the theory by showing how Management Control System can govern Risk Management fromPragmatic Constructivist perspective. Applying the case study finds out mainly that action control in a form of two-waycommunication between actors (managers and technicians) at the process of risk identification, risk analysis, decisionmaking and monitoring, risk reality is necessary. Results controls direct attention to facts entered by actors according totheir expertise and level of influence. Personnel control enables to choose people with common values and necessarycompetencies to share knowledge for risk management. In this way actor-based reality with the actors being co-authorsof the reality can take place. The main implications of the research suggest that: 1) the successful integration of RM intoMCS requires pragmatic constructivist reality to applied by providing the contribution from all the actors so that theRM system is practical, and 2) RM should be designed to gather some subjective data from the ground level (e.g. on theprobability of an incident recurring and the potential costs of any particular type of incident) to balance the objectiveinformation gathered so that the PC approach can support RM and MCS.