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Managing Uncertainty

Managing Uncertainty

On the face of it, managing uncertainty is an impossible task but good planning can help. Trying to manage uncertainty is often a consideration for large businesses but it should be of concern to all of us. Companies with a strong risk management culture regularly engage in what’s called scenario planning. This involves making disciplined assumptions on future circumstances; (not be confused with naked forecasting). It is most often used to assess how a business environment will ebb and flow over time in light of future developments. It’s a really useful risk-control tool and consumers should take note.

The best scenario plans involve imagination, creativity and humour – much to the chagrin of ruthless and busy chief executives!! It’s useful to allow stories to develop, however fanciful, the purpose being to explore all possible eventualities before settling on a core set of strategies.

Creating a cohesive future strategy is fraught with danger because, naturally, the future is so uncertain. Therefore, the obvious solution is to contemplate a number of possible concerns so that we can change course as necessary. “What if” is a useful tool for scenario planning! This allows us to determine what might happen; placing us in a far better position to deal with what will happen. Managing surprises, particularly large damaging surprises, is not a good idea. And hoping for the best is not a strategy.

Companies often cover their exposures by hedging financial risks or by taking out insurance cover – but these can prove expensive and there’s no certainty that the business will have identified all of the risks. Time spent on scenario planning is, therefore, critical.

There are a few little techniques to follow. Always develop an even number of scenarios because if there is an odd number people tend to choose the middle one! The ideal position is four possible scenarios with one as the agreed base case. Discussions around scenario planning should not be conducted like other meetings where absolute decisions are the outcome.

The discipline around scenario planning, if properly adopted, allows for a really robust and meaningful plan. But, as is so often the case, the close and purposeful interactions between employees throw up some other benefits. Discussions around scenario planning invariably help protect against “groupthink”, where the boss or other forceful voices hold sway. Scenario planning also encourages employees to challenge conventional wisdom and explore other variables. Over time this inevitably leads to innovation and competitive advantage.

Scenario planning is not for everyone. Prissy chief executives see it as an abdication of leadership. Ambitious underlings with bright ideas fear that sharing their thoughts in an open forum will deny them their just reward. Smaller companies that can avoid such institutional idiosyncrasies are in line to benefit most from scenario planning.

Managing uncertainty is not exclusively confined to business. Many consumers also face the prospect of uncertain futures. But many also view the aspiration of scenario planning as time consuming and wasteful. MMPI advocates scenario planning for all personal circumstances!

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