When in doubt, develop the situation

Developing the situation is the common-sense approach to dealing with complexity. Both as a method and a mind-set, it uses time and our minds to actively build context, so that we can recognize patterns, discover options, and master the future as it unfolds in front of us (Blaber, 2008)

In our setting ‘developing the situation’ is the process of numerically describing (modelling) the company’s operations taking into account input from all parts of the company; sales, procurement, production, finance etc. This again has to be put into the company’s environment; tax regimes, interest and currency rates, investors expected return and all other stake holders expectations.

This is a context building process ending up with a map of the company’s operations giving clear roles and responsibilities to all departments and owners to each set of input data (assumptions).

Without including uncertainty and volatility in both assumptions and data, this is however only a two dimensional map.  Adding the always present uncertainty gives us the third dimension and the option of innovation:

… discovering innovative options instead of being forced to default to the status quo. Developing the situation optimizes our potential to recognize patterns and discover innovative options because it’s synergistic with how the human mind thinks and makes decisions (Blaber, 2008)

Having calculated the cumulative probability distributions for key variable, new information is immediately available. Shape and localization tells us about underlying uncertainty and possible outcomes. Some distributions can be tweaked and some not. Characteristics of production like machine speed, error rates or the limit of air traffic movements are given and can only be changed over time with new investments. Other like sales, ebitda, profit etc. can be tweaked and in some cases even fine tuned by changing some of the exogenous variable or by introducing financial instruments or hedges etc.

Planning for an uncertain future is a hard task, but preparing for it by adapting to the uncertainties and risk uncovered is well within our abilities – giving us:

…  freedom of choice and flexibility to adapt to uncertainties instead of avoiding them because they weren’t part of the plan. Happenstance, nature, and human behaviour all interact within an environment to constantly alter the situation. No environment is ever static. As the environment around us changes, developing the situation allows us to maintain our most prized freedom: the freedom of choice – to adapt our thinking and decision-making accordingly (Blaber, 2008)

Not all uncertainty represents risk of loss, but manifestations of opportunities given the right strategy, the means and will of implementation:

… having the audacity to seize opportunities, instead of neglecting them due to risk aversion and fear of the unknown. Risk aversion and fear of the unknown are direct symptoms of a lack of context, and are the polar opposites of audacity. The way to deal with a fear of the unknown isn’t to avoid it by doing nothing … (Blaber, 2008)

Pete Blaber’s book originally written on a totally different theme than ours can, as good books on strategy and hard earned experience from military planning, easily be adapted to our civilian purpose.

References

Blaber, P., (2008). The Mission, the Men, and Me. New York, Berkley Hardcover.