Guest Post by Patrick Ow (first posted on CERM ® RISK INSIGHTS – reposted here with permission)
Uncertainty is all around us, never more so than today. Whether it concerns a global pandemic, the economy, or your finances, health, and relationships, much of what lies ahead in life remains uncertain.
Nonetheless, life continues. You still must earn a living, take care of the family, house, and car, and walk the dog. All under these new clouds of stress and uncertainty.
Faced with an important decision, levels of uncertainty play a tremendous role. This is where making smart choices is a key skill for personal and professional success. Leaders know that making good, fast decisions can be very challenging under the best of circumstances where facts and knowledge are constantly changing and decaying, and where there are more unknowns and uncertainties than knowns and certainties.
Applying effective strategies and techniques can help you improve your decision-making skills and improve your outcomes and success. You need valuable knowledge, as opposed to any data or information, for making quality decisions. It is not about having more information but having the right amount of valuable knowledge (and wisdom) that is available at the time of decision-making.
In this article, I will explain how you can make smarter choices under certainty, risk, and uncertainty in a changing world.
The two dimensions of decision-making
The two relevant dimensions for decision-making under certainty, risk, and uncertainty that form the certainty-uncertainty spectrum are:
- Degree of certainty – It ranges from close to certainty to far from certainty.
- Level of predictability and control – It moves from close to predictability and controlto far from predictability and control.
Close to certainty
Decisions are close to certainty when ALL relevant information is known and when the cause and effect linkages are also known.
Extrapolating from experience is a good method to plan for future outcomes with a good degree of certainty in this close to certainty range.
Extra data or information can make our planning ‘perfect’. This is usually the case when a very similar issue or decision has been made in the past. Big data, analytics, machine learning, and artificial intelligence can significantly enhance our decision-making quality.
In this close to certainty range, you can plan with confidence using evidence-based decision-making, rational decision-making, traditional corporate planning, or even ‘follow the science’ methods.
When you can plan with certainty, or when forecasting and analysis can be performed with accuracy, you can make things operate with optimum efficiency. Efficiency is powerful with any work or system that can be standardized, measured, and predicted. It can be further enhanced and streamlined with technology, quality improvement, or business process re-engineering methods.
Far from certainty
At the other end of the certainty continuum, decisions are far from certainty when NO relevant information is known and when cause and effect linkages are unknown.
Extrapolating from experience is not a good method to predict future outcomes in this far from certainty range.
Extra data or information will not make our predictions perfect or better. Big data, analytics, machine learning, and artificial intelligence will only obscure our decision-making flaws.
In this far from certainty range, you cannot plan with any degree of confidence and certainty. The traditional methods of planning are very insufficient in these contexts.
Instead, you can only prepare for uncertainties to may occur through response, resilience, or business continuity planning. You cannot plan for uncertainties.
Trying to standardize, measure, and predict work that is far from certainty may only instill the illusion of control. It can demotivate people whose skill sets can meet unpredictable or uncontrollable demands. It can also rob people of their agility and capacity to adapt and respond rapidly with creativity and commitment.
Close to predictability and control
In close systems where patterns of causes and effects are repeated in predictable ways, they can be further streamlined and controlled for optimized efficiency. This frequently occurs in liner systems and sequential processing.
Your knowledge is constant with very few changes. The available information to improve efficiency is knowable and predictable. The situation is controllable and you can do something about it.
For example, the manufacturing process at a food processing facility. There are lots of moving components, many interconnecting parts or elements, and many people involved in the manufacturing process along the value chain. It’s easy to see the whole system and manage and control all the interconnecting parts with efficiency. The process is largely the same every day with few unforeseen situations likely to arise. This process can be effectively controlled and fully optimized for efficiency.
Far from predictability and control
At the other end of the predictability and control continuum are open systems where patterns of causes and effects cannot be determined in any predictable way. You must be agile and robust. Constantly, you must adapt rapidly and respond to uncertainties and the ever-changing world with creativity and commitment.
Flexibility and adaptability are more valuable than expertise and efficiency, as the most recent thing that happened may not or will not happen again. Your past is not the predictor for your future.
This occurs generally in non-linear and fluid systems. There are lots of different uncontrollable factors interacting with each other. They are not repeated in predictable or certain ways. It is extremely difficult to see the whole system at once because many known and unknown factors interact to create multiple reactions and outcomes.
You cannot manage or control the system and plan with confidence and certainty. You cannot do any accurate analysis, planning, or even forecasting beyond, say 100 to 150 days into the future, if at all. This makes planning, forecasting, or analysis extremely challenging.
As the future can change so quickly, you can only put in place contingencies to make the business more resilient when certainties do materialize.
Patrick Ow is a corporate and personal trainer and coach at Practicalrisktraining.com.
As a Chartered Accountant with over 25 years of international risk management experience, he helps individuals and organizations succeed by making better-informed decisions under uncertainty and taking the right opportunities and risks. He has developed PrOACT 31000, a practical yet simple framework based on the world-class PrOACT decision-making framework and the international risk management standard, ISO 31000.
Patrick has authored several eBooks including Strategic Risk Management Reimagined: How to Improve Performance and Strategy Execution and Things Parents Wish They Knew Earlier: The Family Risk Management Handbook.