Changes within the organisation or the environment will prompt decisions that might affect: Risk management is much more than a process of identifying and reporting threats. Stretch out of your comfort zone. Being aware of our uncertainty is a necessary precursor to managing it. There is so much we know to be unknown. You, or someone, can take it apart and see how it works. All rights reserved. To find out more about gathering the right information for good risk management, please refer to our Building your risk management framework guide. The antidote to VUCA is about moving from Volatility to Vision, from Uncertainty to Understanding, from Complexity to Clarity and from Ambiguity to Agility. And how do I expect to use it? The occurrences of such very uncertain situations are also an additional reason for central banks to rely upon what I call “collegial wisdom”. We’ve explored that decisions will always involve degrees of uncertainty, and often, complexity or chaos. Making decisions in situations of uncertainty requires a sort of gamble. I use Chip and Dan Heath’s WRAP decision-making framework, from their book Decisive: How to Make Better Choices in Life and Work (Amazon UK, US), which works well in uncertain situations. We’ve produced a decision making and uncertainty map that explores the practice of slowing down decision making and sets out: Note that some events will have clear, complicated and complex aspects to them. It’s critical that your risk management activities inform decision making and accounts for a range of complexities. As we’re battling a virus that scientists still don’t fully understand, watching the stock market sink, then soar, then sink again, and facing a contentious election, the future seems completely unpredictable (instead of merely as unpredictable as it has always been). Risk assessments can form richer and more informative insights if you know the kind of decisions you’re making and the extent of uncertainty. So, it’s important that boards and the executive team implement frameworks and processes that will allow employees to do their work and model a culture of good decision making. In choosing a cup of coffee, there will be at least the possibility that the coffee doesn't taste good, is not hot, or will not provide the usual pleasurable feeling. At the same time, you help advancement in scientific research. They have to depend upon their judgment and experience for making decisions. Reality: Decision making always involves uncertainty Even the simplest decisions carry some level of uncertainty. Quick links: Provide feedback; Consultation. We’re now being confronted with data that looks actionable — even though logically, we know it’s incomplete and volatile. It will also give you a better context for interpreting the answers, because you’ll know the lens through which they are being filtered. On the other hand, we know risk management activities are normally carried out assuming the world is ordered and are easily understood. Interpreting data, research and situations requires interpretive skill and subject matter expertise. Unravelling why a given event is happening, or could happen, isn’t easy but it can be done to the extent that it’s worthwhile to investigate. They embrace that which they can’t control. Classifying and addressing the ingredients in the uncertainty mixture won’t gain us certainty, but we can be sure that our questions address all areas of uncertainty. Here are some questions that may be helpful for you to consider. We’re all used to operating with a degree of uncertainty, but between the Covid pandemic and a contentious election year, 2020 is shaping up to be even more unpredictable than usual. evaluating the State’s current Thunderstorm Asthma Program). We all like to be in control. Many of us have trouble crafting the questions that could help us make a decision. A traveler’s concerns would be whether and when there is a flight to the desired destination and whether it feels safe to take it, whereas an investor might focus on which airline is best positioned to survive the downturn. Assumptions and unexamined beliefs can limit your understanding of a situation. These insights will help you to understand how you make decisions in uncertain situations and how your natural preferences compare to those of others. We’ll have a more complete picture, reducing the likelihood that we’ll rely upon well-worn thinking pathways and cognitive biases. © State of Victoria through the Victorian Managed Insurance Authority 2020. Did the information on this page meet your needs? … When dealing with a very high degree of uncertainty the analytical work might be less reliable and experience appears to be playing a more important role in the decision-making process. Harm to people, places and the environment is almost certain. We may become paralyzed and afraid to act, or we may act on the basis of bias, emotion, and intuition instead of logic and facts. Please explore the topic and tools below. Sanchez of Decision Strategies Inc., a company that focuses on helping their clients gain clarity when making decisions in complex situations. Some decisions ensure your organisation is resilient, capable, innovative and accountable for prior decisions and actions. The four-step process helps us better address our emotional responses, name and confront them, and move forward with a rational decision. Begin at the end, asking: So what? Different kinds of data trigger different biases, so identifying the data type and its related bias makes it easier to escape mental mistakes. take time to reflect and review the outcomes and progress of our decisions. We have to make the best decision that we can. Giving yourself a moment to step back, take stock, … Recognizing how each of these categories triggers our biases can prevent us from falling prey to those biases, but how do we move forward once we’ve accepted that we need additional information or insight to confidently make decisions about the future? Most of the important decisions that we make in life are in situations where we can't be completely certain what will happen. Over time you can move from decisions that are reactive and chaotic (e.g. This idea is at the heart of the Victorian Government Risk Management Framework (VGRMF), which gives structure to decision making and drives accountability for decisions made. Take a breath. What do I really need to know to understand the situation? Victorian Managed Insurance Authority (VMIA) acknowledges the Traditional Custodians of the land on which we do business and we pay our respects to Elders past, present and emerging. People are like elastic bands — they only grow when they stretch. The issue of making decisions under empirical uncertainty has been well-studied, and expected utility theory has emerged as the typical account of how a rational agent should proceed in these situations. a pandemic lock-down leads to an interruption of supply of face masks, E.g. In this lecture, we are going to see what means to take decisions in uncertain situations. Pause and take a breath—literally. how the uncertainty can be resolved with various procedures or practices. But even when knowledge is limited, we have tools to help us make decisions systematically and analytically. It’s the conscious act of gathering information to resolve and reduce uncertainty or likelihood of that risk occurring. These events are hard to predict, sensitive to small, hard-to-identify changes, and better understood in hindsight. There’s no time to gain knowledge to inform your response. Diversity of thought and experience will also allow you to think holistically. The universe of “known unknowns” — those pieces of data that exist but are not in your possession — is endless. However, sometimes we have no choice. When we feel such heightened uncertainty, our decision-making processes can break down. Here we frame alternative views of the future and then ask questions about the decisions we need to make should those futures materiaize. The risk appetite statement helps you address uncertainty by setting boundaries and is a way to make your decisions defensible. Helping to protect important assets and services for all Victorians, Managing claims in a balanced and consistent way, Training and information to build your risk and insurance capabilities, Building your insurance and risk capability via articles, guides, and kits, VMIA is the Victorian Government’s insurer and risk adviser, covering the people, places and projects that help Victorians thrive, How we support our employees to do work that matters, E.g. In these situations, agents seem to be more receptive to new information, which becomes more valuable and is given a larger weight in the decision-making process , . Make decisions with uncertain information and dealing with ignorance; Navigate and evaluate types of evidence and their strengths/weaknesses; Understand the implications of cognitive bias in decision making. You can also refer to your organisation’s risk appetite statement when you make decisions. We understand causes, conditions and other factors. Unconscious thinking, emotions and our bias affect our ability to make rational decisions. Generate Good Alternatives. Use a checklist or other tools to take you through a diagnostic procedure, Engage technical or other skilled support, Seek guidance from someone that’s experienced resolving the event. Whether we’re assessing the meaning of the latest unemployment numbers or the impact of local romaine lettuce shortages, we can use a simple four-step process to work with and through ambiguity to make careful, reasoned decisions. They embrace that which they can’t control. Copyright © 2020 Harvard Business School Publishing. Other decisions are about carrying out the work of your organisation—achieving its objectives, managing projects and acting in the best interests of the people, places and systems in your care. However, if we step back, we can recognize that there will continue to be an airline industry — that in the long term, people will want mobility, and the world’s economy will require it. For example, the salient data about diminishing airline demand triggers a visceral response, which can make it easier to conclude that the industry is permanetly in dire straits. Treatment of Risk in Economic Analysis: Risk analysis involves a situation in which the probabilities … Become comfortable with incomplete clarity in decisions: During times of uncertainty, evidence and research are constantly emerging and ever changing. Providing tools and training to support increased risk exposure awareness. Boards and executives are responsible for these decisions and make them with the support of risk practitioners and other staff who facilitate, advise and inform. We then invite you to complete a short survey to submit your feedback. responding to the first major instance of thunderstorm asthma in Victoria 2016) to more ordered and complicated (e.g. We then invite you to complete a short survey to submit your feedback. At the beginning of any new client engagement, we were expected to develop a “Day One Hypothesis.” Based on the high-level facts that we had learned within the first 24 hours of the project, we were forced to develop an early hypothesis of what the solution to the client’s problem was.How you develop your hypothesis is a combination of good problem solving skills, pattern matching, and intuition. Effective awareness means pausing, taking a strategic stop, and assessing the situation and the unknowns. The author offers a four-step framework to pause and assess ambiguous data: 1) Identify which data you’re working with; 2) Recognize which cognitive biases might accompany that data; 3) Invert the problem to identify what you really need to know; and 4) Formulate the right questions to get the answers you need. Then, the article goes on to discuss the five contexts for certain types of decision making. Interpreting data, research and situations requires interpretive skill. But you don’t need to explore them all; inversion can help you home in on those you deem to be critical to solving your specific problem with confidence. Our approach to decision making should differ based on whether we are dealing with a risky situation or one that is uncertain. Good risk management is about dedicating time to make proper decisions and planning for this uncertainty. As you become aware of personal behaviours and psychological patterns behind decision making, you’ll adopt practices that lead to better quality information and decisions. Poker, Speeding Tickets, and Expected Value: Making Decisions in an Uncertain World Reading Time: 13 minutes You can train your brain to think like CEOs, professional poker players, investors, and others who make tricky decisions in an uncertain world by weighing probabilities. Scenario analysis. We all like to be in control. The more time spent reflecting on how we make our business decisions, the better our outcomes will be. This summary of the four villains of decision making – narrow-framing, confirmation bias, short term emotion and over-confidence – provides further context. The causes, conditions and other factors that lead to events are understood by those with expertise. The gravest of decisions are being made under conditions of high uncertainty and not enough time. When Identifying, analysing and evaluating risks, carefully identify the decisions that are relevant and the degree of complexity that exists. Economist Alison Schraeger shares a three-step process for managing risk. One decision-making tool useful in such situations is scenario analysis. The results of the present study fit nicely into this general framework by showing that uncertainty also modulates the influence of prior social information in interpersonal decision-making. How do we think about decision-making in these radically uncertain circumstances? Spend time properly understanding and choosing the right problem to solve, Engage expertise and consult with stakeholders to understand drivers and barriers, Use analytical tools such as system and influence mapping, Carry out desktop research or undertake new observational research to find out more about this type of problem, Look for opportunities to co-design and collaborate on implementation. The third step in our process is to realize that you don’t need to know everything, but you do need to identify what matters most to your decision-making. the uncertainty they present to decision makers. Step 1. For someone without knowledge or skill, these situations can seem chaotic. It’s difficult to know what’s the appropriate decision. Learn about the role of uncertainty in decision making, with hands-on exercises and tools The presentation was developed by O.J. You can ask these types of questions about any kind of incomplete data: salient, contextual, and/or patterned. There are certain risks involved in making decisions. On the other hand, the uncertainty pertains to those situations where the decision maker is aware of the main variables to consider into the decision making process as well as of the main scenarios that might happen. Making decisions in situations of uncertainty Good risk management is about dedicating time to make proper decisions and planning for the uncertain. In the face of such uncertainty, managers need to make certain assumptions about the situation in order to provide a reasonable framework for decision-making. Step four acknowledges that uncertainty is a mix of actions and reactions, knowledge and emotion. After all, people who feel like … These events maybe predictable, but their timing and scale are almost impossible to anticipate. We acknowledge the important contribution that Aboriginal and Torres Strait Islander peoples make in creating a thriving Victoria. Are being made under conditions of high uncertainty and not enough time extent by with! Under risk, and assessing the situation on those made by the and... By his questions rather than his answers unexamined beliefs can limit your understanding of a situation way! 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