Evaluating Risk: A Revisit of the Scales, Measurement Theory, and Statistical Analysis Controversy

The risk management community has had a limited focus on the scales-measurement theory and typically applies all forms of parametric analysis on ordinal data. In many cases the resulting conclusions that are developed are flawed and misleading. Risk professionals should be cognizant of the impacts of the underlying theory of scales and measurements. It is the authors' position that the application of best practices that comprehensively mitigate impacts of the scales-measurement controversy are necessary for avoiding significant negative impacts that lead to misguided decision making.