Organizations manage financial, operational and strategic risks. But what about the condition of the people making those decisions?
Every organization has systems to manage risk.
Financial exposure is monitored. Operational vulnerabilities are assessed. Compliance procedures are established. Strategic threats are discussed at board meetings.
Yet one potential source of risk often receives far less attention: the cognitive condition of the people responsible for making critical decisions.
A senior executive may have decades of experience, access to sophisticated analytics, and the support of an excellent management team.
But what happens when that executive has been operating on insufficient sleep for several consecutive nights?
The issue is not a lack of competence.
It is whether the brain has sufficient capacity to exercise that competence effectively.
Sleep Deprivation Changes How We Evaluate Risk
Research suggests that insufficient sleep can alter how individuals assess uncertainty, evaluate consequences, and make decisions involving potential gains and losses.
In an experimental study, Salfi and colleagues examined the effects of total and partial sleep deprivation on decision-making. They found that repeated sleep restriction increased impulsive decision-making and risk-taking, particularly among individuals who were normally cautious and deliberate [1].
This finding is especially relevant to leadership.
Experience and professional expertise do not necessarily protect someone from the cognitive consequences of insufficient sleep.
However, the scientific picture is more nuanced than simply concluding that tired people take more risks.
A research review by Wei and colleagues found that sleep deprivation can increase or decrease risk-taking, depending on the individual, the decision-making task, and the circumstances [2].
The real concern is not that sleep-deprived leaders always take greater risks. It is that sleep loss can change how they evaluate risk.
The Missing Variable in Enterprise Risk Management
Organizations invest heavily in enterprise risk management frameworks, internal controls, and governance structures.
These systems are essential. But they depend on human judgment.
Consider a few common leadership situations:
- A CEO evaluating a major acquisition.
- A CFO deciding how much financial exposure the company should accept.
- An operations director responding to a serious supply chain disruption.
- A senior manager making a high-stakes decision under pressure.
In each situation, the quality of the decision depends partly on the leader’s ability to assess information, weigh consequences, and exercise judgment.
Research reviewed by Womack and colleagues found an overall association between sleep loss and increased risk-taking behavior, although results differed across studies and decision-making contexts [3].
This raises an important organizational question:
If we recognize human error as an operational risk, should we not also recognize fatigue as a potential contributor to that risk?
This does not mean that sleep deprivation explains every poor decision. Nor does it mean that sleep quality can replace sound governance.
It means that cognitive readiness deserves consideration alongside the traditional factors influencing organizational risk.
Risk Management Begins Before the Decision
Many organizations respond to poor decisions by reviewing processes, introducing additional controls, or providing more training.
These interventions can be valuable.
But they may overlook an important factor: the physiological condition of the decision-maker.
A leader who is sleep-deprived may struggle to process complex information, regulate impulsive responses, or consistently evaluate competing alternatives.
More information or another decision-making framework may not fully compensate for reduced cognitive capacity.
A more comprehensive approach to risk management should therefore consider whether critical decisions are being made under conditions that support sound judgment.
This could include avoiding unnecessary fatigue during high-stakes decisions, designing appropriate recovery opportunities, and recognizing sustained sleep restriction as a potential performance risk.
From Personal Wellness to Organizational Risk
Sleep is often treated as a personal lifestyle choice.
Yet the consequences of insufficient sleep can extend beyond the individual, particularly when someone is responsible for decisions affecting employees, customers, investors, or organizational safety.
For leaders, sleep and recovery should not be viewed solely as wellness activities.
They are also relevant to the conditions under which judgment is exercised.
Organizations cannot eliminate uncertainty. But they can reduce avoidable vulnerabilities in the people responsible for managing it.
Perhaps it is time to expand the risk-management conversation.
Not just: What risks are we facing?
But also:
Are our decision-makers in the best condition to manage those risks?
References
[1] Salfi, F., et al. (2020). Effects of Total and Partial Sleep Deprivation on Reflection Impulsivity and Risk-Taking in Deliberative Decision-Making. https://pmc.ncbi.nlm.nih.gov/articles/PMC7261660/
[2] Wei, X., et al. (2024). The Effects of Sleep Deprivation on Risky Decision Making. https://doi.org/10.3758/s13423-024-02549-6
[3] Womack, S. D., et al. (2013). Sleep Loss and Risk-Taking Behavior: A Review of the Literature. https://www.researchgate.net/publication/234049449_Sleep_Loss_and_Risk-Taking_Behavior_A_Review_of_the_Literature