Decision-making in an increasingly uncertain world
Decision-making in an increasingly uncertain world.
Risk committees and managers have improved the process of making decisions in risky environments. Identifying the range of outcomes, estimating their likelihood and calculating their potential impact have become standard management tools.
However, uncertainty is very different from risk. With uncertainty the distribution of outcomes as well as the consequences are unknown.
The European environment with its geopolitical instability, war at its frontiers, shortages in the supply chain, fast increasing interest rates, a severe recession around the corner, the challenging route towards zero emission, … reflects current uncertainty well.
How should managers cope with uncertainty?
I believe these 10 principles of decision making can help managers to guide their organization through the difficult times ahead.
- Consult with a multifunctional group in which internal and external members speak up. Dissenting voices often enrich a debate. Reject the hierarchical model for such group.
- Do not lose time in trying to collect more information. Of course, you want to make the best-informed decision, but it has a price. In fact the information you would like to receive is often not available.
- Make premortem analyses. Establish multiple possible scenarios with the bad outcomes and analyze what possible pathways could contribute to each of them.
- Narrow down the time frame for decisions. Acting fast will improve your chances of getting out of the uncertainty.
- Identify small decisions instead of big-bang ones. Determine which ones you should focus on right now and which you could consider later. Ideally, those should be the irreversible ones.
- Invest in keeping up as many options open as possible. Having a wide range of options increases your future flexibility.
- Avoid making decisions influenced by emotion. It can lead to impulse reactions and potentially bad choices.
- Create a war room, allowing you and your close staff to maintain focus.
- Lead your organization into the unknown. Send out your ambassadors to spread the word.
- Forget about efficiency, focus on effectiveness
By Michel Van Hemele, Managing Partner Essensys.