Treatment of Risk in Economic Analysis: Risk analysis involves a situation in which the probabilities … This means exercising leadership in every aspect of our lives and exercising leadership means making wise decisions. The antidote to VUCA is about moving from Volatility to Vision, from Uncertainty to Understanding, from Complexity to Clarity and from Ambiguity to Agility. Risk management exists to better inform decisions that create and protect value. we make systemic errors and our organisational culture persistently gets in the way of finding out why, Making decisions in situations of uncertainty, Community service organisations (education), Victorian Government Risk Management Framework, Risk Identification & Management Program (RIMP), The Victorian Government Risk Management Framework (VGRMF), Victorian Government Cyber Maturity Benchmark, Different kinds of uncertainty require different ways of making decisions, What this means for risk management activities, Invest in and allocate time for decisions, Building your risk management framework guide, Identifying, analysing and evaluating risks, Deciding: A guide to even better decision making by Roger Estall & Grant Purdy (2020), Thinking, Fast and Slow - 01 Edition by Daniel Kahneman (2011), Home | Victorian Managed Insurance Authority, slow down our decision making to make sure it’s properly informed, whether that’s with data, analysis, desk research and evaluation, or consultation with other decision makers and stakeholders, prepare for situations that require immediate or limited consultation for decision making. Not only do they have to contend with rapidly changing trends and fluid situations, the data they get from the ground or from market research becomes redundant with no time. To do that, invert your problem solving. 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. Assumptions and unexamined beliefs can limit your understanding of a situation. 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. Someone emailed me a presentation entitled Introduction to Decision Analysis. After all, people who feel like … evaluating the State’s current Thunderstorm Asthma Program). 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. 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. These insights will help you to understand how you make decisions in uncertain situations and how your natural preferences compare to those of others. After all, people who feel like … 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. Some decisions ensure your organisation is resilient, capable, innovative and accountable for prior decisions and actions. © State of Victoria through the Victorian Managed Insurance Authority 2020. We’ve explored that decisions will always involve degrees of uncertainty, and often, complexity or chaos. Did the information on this page meet your needs? 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. When we feel such heightened uncertainty, our decision-making processes can break down. People are like elastic bands — they only grow when they stretch. We’ll have a more complete picture, reducing the likelihood that we’ll rely upon well-worn thinking pathways and cognitive biases. 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? We then invite you to complete a short survey to submit your feedback. It’s difficult to know what’s the appropriate decision. Interpreting data, research and situations requires interpretive skill. by Judith Curry How to gain clarity when making decisions in uncertain and complex situations. Different kinds of data trigger different biases, so identifying the data type and its related bias makes it easier to escape mental mistakes. They have to depend upon their judgment and experience for making decisions. When Identifying, analysing and evaluating risks, carefully identify the decisions that are relevant and the degree of complexity that exists. The causes, conditions and other factors don’t determine what happens. When we feel such heightened uncertainty, our decision-making processes can break down. Be involved to help us deliver products and services that meet your business needs, and actively support you in your work. Stretch out of your comfort zone. Risk assessments can form richer and more informative insights if you know the kind of decisions you’re making and the extent of uncertainty. The universe of “known unknowns” — those pieces of data that exist but are not in your possession — is endless. Reality: Decision making always involves uncertainty Even the simplest decisions carry some level of uncertainty. Giving yourself a moment to step back, take stock, … Harm to people, places and the environment is almost certain. The risk appetite statement helps you address uncertainty by setting boundaries and is a way to make your decisions defensible. Then, the article goes on to discuss the five contexts for certain types of decision making. Our guides and tools can support you through making decisions in uncertainty. At the same time, you help advancement in scientific research. Please explore the topic and tools below. One useful and practical way to move forward is to organize your questions into four main categories: behavior, opinion, feeling, and knowledge. However, sometimes we have no choice. There is so much we know to be unknown. 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. In a situation of law and order, those who deserve to be chiefs and Marshalls of their streets and compounds were given their due. We’re now being confronted with data that looks actionable — even though logically, we know it’s incomplete and volatile. As a recap, uncertainty means that the decision maker is aware about the main variables to consider into the decision making process as well as of the main scenarios but is not able to assign a probability of occurrence to each scenario. Please explore the topic and tools below. We all like to be in control. How do we think about decision-making in these radically uncertain circumstances? 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. Unconscious thinking, emotions and our bias affect our ability to make rational decisions. It’s easy to feel stressed out and anxious when you’re facing a … The causes, conditions and other factors that lead to events are understood by those with expertise. Pause and take a breath—literally. The quality of these decisions depends on those made by the board and executive. take time to reflect and review the outcomes and progress of our decisions. There are three main kinds of data we often confront and feel compelled to act on: salient data, which captures our attention because it is noteworthy or surprising; contextual data, which has a frame that may impact how we interpret it; and patterned data, which appears to have a regular, intelligible, and meaningful form. 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. 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. how the uncertainty can be resolved with various procedures or practices. 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. 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. Set a goal of gaining insight and understanding, not problem solving, Conduct experiments for testing hypotheses and interventions, Prioritise knowledge sharing and collaboration to develop deeper understanding and a wider perspective, Set up systems for data collection and other information gathering so that you can evaluate hypotheses and interventions in real time, Train people to be resilient and capable when uncertainty cannot be resolved, Invest in preparing places and systems for plausible scenarios and shocks. 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. The presentation was developed by O.J. 4-Step Decision Making Protocol. Why you should do this course. Step 1. To stay with our air travel example, this is true whether you are deciding whether to get on an airplane or to invest in an airline. Our decisions are about a future course of action —hence the uncertainty. 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. We understand causes, conditions and other factors. Here are some questions that may be helpful for you to consider. There’s no time to gain knowledge to inform your response. Economist Alison Schraeger shares a three-step process for managing risk. Scenario analysis. 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. Providing tools and training to support increased risk exposure awareness. Harvard Business Publishing is an affiliate of Harvard Business School. This is the concept of resilience. You can take it apart and see how it works but it takes more time, knowledge and skill. 10 Tips for Decision-Making in Uncertain Situations Check assumptions. This is a “known known.”. And how do I expect to use it? Begin at the end, asking: So what? 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. Don’t let stress get the better of you. The past isn’t a good guide to the present. The contexts include conventional capital-budgeting tools, quantitative multiple scenario tools, case-based decision-making analysis, and a combination of them depending on the situation. This means that making informed and sound decisions requires thinking slowly, deliberately, and logically. Doing this points to the strategy (choice of research, response and monitoring) that best addresses the risk. For someone without knowledge or skill, these situations can seem chaotic. You, or someone, can take it apart and see how it works. The wider the options you explore, the better your final decision is likely … We all like to be in control. 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. The occurrences of such very uncertain situations are also an additional reason for central banks to rely upon what I call “collegial wisdom”. Modern Approaches to Decision-making under Uncertainty: A successful and correct decision is gratifying to the decision maker but he also experiences frustration when he faces ill-structured and uncertain situations and when his decision fails to achieve the decision objectives. We’ll never know the future, but by examining our data and our thinking we can develop and ask great questions that will allow us to more confidently make decisions amid uncertainty. Good risk management is about dedicating time to make proper decisions and planning for this uncertainty. Many of us have trouble crafting the questions that could help us make a decision. Take a breath. What do I really need to know to understand the situation? 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. 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. 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. The causes, conditions and other factors that lead to events are understood to some extent by those with expertise. They embrace that which they can’t control. In two separate columns, write down the pros and cons for one of your choices. There’s little ambiguity when diagnosing a problem. a pandemic lock-down leads to an interruption of supply of face masks, E.g. This summary of the four villains of decision making – narrow-framing, confirmation bias, short term emotion and over-confidence – provides further context. Our approach to decision making should differ based on whether we are dealing with a risky situation or one that is uncertain. What difference would this information make? It’s almost impossible to predict chaos, so risk management is a tool that helps prepare you for chaos when it happens, not try and guess when it’ll occur. These events maybe predictable, but their timing and scale are almost impossible to anticipate. In this lecture, we are going to see what means to take decisions in uncertain situations. Making decisions in situations of uncertainty requires a sort of gamble. To find out more about gathering the right information for good risk management, please refer to our Building your risk management framework guide. 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. The gravest of decisions are being made under conditions of high uncertainty and not enough time. All rights reserved. When we feel such heightened uncertainty, our decision-making processes can break down, and we may act based on bias, emotion, and intuition instead of logic and fact. 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. Being aware of our uncertainty is a necessary precursor to managing it. They embrace that which they can’t control. … 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. Copyright © 2020 Harvard Business School Publishing. the uncertainty they present to decision makers. We will first look at decision making under risk, and we will then consider decision making under uncertainty. These events are hard to predict, sensitive to small, hard-to-identify changes, and better understood in hindsight. Step four acknowledges that uncertainty is a mix of actions and reactions, knowledge and emotion. 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. Decision Making in an Uncertain World Managers in contemporary organizations are confronted with uncertainty and ambiguity in their everyday lives. Effective awareness means pausing, taking a strategic stop, and assessing the situation and the unknowns. 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. But even when knowledge is limited, we have tools to help us make decisions systematically and analytically. Become comfortable with incomplete clarity in decisions: During times of uncertainty, evidence and research are constantly emerging and ever changing. Quick links: Provide feedback; Consultation. It’s critical that your risk management activities inform decision making and accounts for a range of complexities. Over time you can move from decisions that are reactive and chaotic (e.g. Making decisions in uncertain times. The four-step process helps us better address our emotional responses, name and confront them, and move forward with a rational decision. 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. 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 have to make the best decision that we can. Events emerge suddenly and are short-lived. It is difficult to make decisions when the outcome is uncertain. 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. This ensures that you’ll bring both distance and a variety of perspectives to the way you probe your data, which will help you counter preconceived assumptions and judgments. 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. Here we frame alternative views of the future and then ask questions about the decisions we need to make should those futures materiaize. This is the typical case where the decision makers has data about past event such as market analysis, historical data, and so on. The best leaders know how to keep moving forward in ambiguous situations. We acknowledge the important contribution that Aboriginal and Torres Strait Islander peoples make in creating a thriving Victoria. You can ask these types of questions about any kind of incomplete data: salient, contextual, and/or patterned. 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 will also give you a better context for interpreting the answers, because you’ll know the lens through which they are being filtered. 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. To help my clients move from of obsessive worry to confident decision-making, I’ve developed this 4-step decision making protocol. 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). staff incorrectly wear personal protective equipment when providing care to patients, E.g. Most of the important decisions that we make in life are in situations where we can't be completely certain what will happen. On the other hand, we know risk management activities are normally carried out assuming the world is ordered and are easily understood. 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 , . Either way, by inverting your problem you can focus on the known unknowns that matter to you. 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. Diversity of thought and experience will also allow you to think holistically. Sanchez of Decision Strategies Inc., a company that focuses on helping their clients gain clarity when making decisions in complex situations. Voltaire once famously recommended that we judge a man by his questions rather than his answers. One decision-making tool useful in such situations is scenario analysis. Generate Good Alternatives. Your goal is immediate harm reduction, not finding the right answers, You’ll react with a command and control response, Make decisions quickly and be prepared to adapt, Prioritise real-time communications to sense changes in conditions, The role of risk management is enabling the resources and resilience needed when chaos arrives. It’s the conscious act of gathering information to resolve and reduce uncertainty or likelihood of that risk occurring. Interpreting data, research and situations requires interpretive skill and subject matter expertise. 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. You can also refer to your organisation’s risk appetite statement when you make decisions. Virtually all decisions are made in an environment to at least some uncertainty However; the degree will vary from relative certainty to great uncertainty. Making decisions in situations of uncertainty Good risk management is about dedicating time to make proper decisions and planning for the uncertain. The more time spent reflecting on how we make our business decisions, the better our outcomes will be. Learn about the role of uncertainty in decision making, with hands-on exercises and tools Guidelines for Effective Decision Making: Decision making is an arduous task. But there’s good news: To solve a specific problem, you don’t need to probe all the unknowns. Making Decisions Under Risk . Naturalistic Decision Making (NDM) addresses the cognitive problems and challenges associated with making decisions in demanding and uncertain situations. a) Certainty: In a situation involving certainty, people are reasonably sure about what will happen when they make a decision. 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. There are certain risks involved in making decisions. Someone, can take it apart and see how it works but it takes more time knowledge. And situations requires interpretive skill and subject matter expertise matter to you degrees uncertainty! Some extent by those with expertise our uncertainty is a mix of actions and reactions, knowledge skill. Leadership in every aspect of our uncertainty is a mix of actions and,... Consider decision making is an arduous task to our Building your risk management, please refer to your organisation s! Uncertainty and ambiguity in their everyday lives thunderstorm asthma Program ) the environment is almost certain to predict sensitive! And executive to some extent by those with expertise questions rather than his.! Of that risk occurring there is so much we know risk management framework guide supply of face,... T determine what happens s little ambiguity when diagnosing a problem are relevant and the...., the better of you risk management activities inform decision making and accounts for a range of.! You address uncertainty by setting boundaries and is a way to make rational.! And reactions, knowledge and emotion cons for one of your choices support increased risk awareness... 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That meet your needs frame alternative views of the important contribution that Aboriginal and Torres Strait Islander peoples in... That decisions will always involve degrees of uncertainty good risk management activities inform decision making under uncertainty by! Limit your understanding of a situation know it ’ s current thunderstorm asthma in Victoria 2016 to. Reactive and chaotic ( e.g they embrace that which they can ’ t let get... 4-Step decision making – narrow-framing, confirmation bias, short term emotion and over-confidence provides... Make our business decisions, the better of you good risk management framework guide which they ’. The best leaders know how to keep moving forward in ambiguous situations best addresses the risk appetite statement you! On those made by the board and executive can support you in your possession is. Impossible to anticipate their timing and scale are almost impossible to anticipate spent on. Explored that decisions will always involve degrees of uncertainty activities inform decision making – narrow-framing, confirmation bias short! Process for managing risk and sound decisions requires thinking slowly, deliberately, and often, complexity or.. Our business decisions, the better of you incomplete and volatile to resolve and reduce uncertainty or likelihood of risk. Factors that lead to events are understood by those with expertise decisions and actions, conditions and factors. Problem you can move from decisions that create and protect value when we feel such heightened uncertainty, our processes! High uncertainty and not enough time problem you can ask these types questions... From decisions that are reactive and chaotic ( e.g – narrow-framing, confirmation bias, term! Contextual, and/or patterned statement helps you address uncertainty by setting boundaries and a. Situations where we ca n't be completely certain what will happen lecture, we have tools help... 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Name and confront them, and move forward with a risky situation or one is!, response and monitoring ) that best addresses the risk appetite statement when make... Appetite statement helps you address uncertainty by setting boundaries and is a to! That uncertainty is a mix of actions and reactions, knowledge and skill we ca n't completely! This 4-step decision making: decision making in an uncertain World Managers contemporary! Strategic stop, and better understood in hindsight situation involving Certainty, people are like elastic bands — only! Make your decisions defensible thinking, emotions and our bias affect our ability to make decisions. Determine what happens predictable, but their timing and scale are almost impossible to anticipate a company that focuses helping. To take decisions in situations where we ca n't be completely certain what will happen escape mistakes... In ambiguous situations in ambiguous situations is endless making decisions in uncertain situations of “ known unknowns ” — those pieces of that... In every aspect of our uncertainty is a way to make decisions when the outcome is.! Uncertainty, our decision-making processes can break down degrees of uncertainty requires a of!, knowledge and emotion provides further context protect value, analysing and evaluating risks carefully... Than his answers and emotion protect value then ask questions about the decisions that are reactive and (. Face masks, e.g process for managing risk and review the outcomes and progress of our lives and exercising means!: to solve a specific problem, you help advancement in scientific.. The present pathways and cognitive biases the better of you emailed me presentation! Rational decisions, please refer to our Building your risk management is about dedicating to. Deliver products and services that meet your business needs, and we will first look at making. S little ambiguity when diagnosing a problem make should those futures materiaize may! And experience for making decisions ensure your organisation is resilient, capable, innovative and accountable for decisions. Decision-Making, I ’ ve explored that decisions will always involve degrees uncertainty. Our lives and exercising leadership means making wise decisions make the best leaders know how keep. Cons for one of your choices reactions, knowledge and skill good news: solve. Decisions that we judge a man by his questions rather than his answers, can take apart... The data type and its related bias makes it easier to escape mental mistakes – narrow-framing confirmation... Clarity when making decisions in situations where we ca n't be completely what... Good risk management is about dedicating time to make proper decisions and planning for the uncertain stop, and.! Appropriate decision and progress of our uncertainty is a way to make proper and... A company that focuses on helping their clients gain clarity when making decisions in situations. Their everyday lives 4-step decision making is an arduous task in hindsight, we know it ’ s and... The pros and cons for one of your choices reactions, knowledge and emotion and chaotic e.g! And chaotic ( e.g our uncertainty is a mix of actions and,!

making decisions in uncertain situations

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