a) Certainty: In a situation involving certainty, people are reasonably sure about what will happen when they make a decision. Our guides and tools can support you through making decisions in uncertainty. 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. The presentation was developed by O.J. 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. 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. 4-Step Decision Making Protocol. 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. When we feel such heightened uncertainty, our decision-making processes can break down. 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. There’s little ambiguity when diagnosing a problem. 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 are hard to predict, sensitive to small, hard-to-identify changes, and better understood in hindsight. Here we frame alternative views of the future and then ask questions about the decisions we need to make should those futures materiaize. You can ask these types of questions about any kind of incomplete data: salient, contextual, and/or patterned. They embrace that which they can’t control. There’s no time to gain knowledge to inform your response. 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 , . What do I really need to know to understand the situation? To do that, invert your problem solving. 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. 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. by Judith Curry How to gain clarity when making decisions in uncertain and complex situations. These insights will help you to understand how you make decisions in uncertain situations and how your natural preferences compare to those of others. How do we think about decision-making in these radically uncertain circumstances? Our approach to decision making should differ based on whether we are dealing with a risky situation or one that is uncertain. The quality of these decisions depends on those made by the board and executive. Be involved to help us deliver products and services that meet your business needs, and actively support you in your work. But there’s good news: To solve a specific problem, you don’t need to probe all the unknowns. Different kinds of data trigger different biases, so identifying the data type and its related bias makes it easier to escape mental mistakes. The antidote to VUCA is about moving from Volatility to Vision, from Uncertainty to Understanding, from Complexity to Clarity and from Ambiguity to Agility. 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. Providing tools and training to support increased risk exposure awareness. 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. The universe of “known unknowns” — those pieces of data that exist but are not in your possession — is endless. When we feel such heightened uncertainty, our decision-making processes can break down. The past isn’t a good guide to the present. evaluating the State’s current Thunderstorm Asthma Program). Pause and take a breath—literally. 10 Tips for Decision-Making in Uncertain Situations Check assumptions. Decision Making in an Uncertain World Managers in contemporary organizations are confronted with uncertainty and ambiguity in their everyday lives. And how do I expect to use it? Stretch out of your comfort zone. Begin at the end, asking: So what? 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. It’s the conscious act of gathering information to resolve and reduce uncertainty or likelihood of that risk occurring. They embrace that which they can’t control. This summary of the four villains of decision making – narrow-framing, confirmation bias, short term emotion and over-confidence – provides further context. There are certain risks involved in making decisions. Modern Approaches to Decision-making under Uncertainty: We have to make the best decision that we can. They have to depend upon their judgment and experience for making decisions. … Most of the important decisions that we make in life are in situations where we can't be completely certain what will happen. Then, the article goes on to discuss the five contexts for certain types of decision making. 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. You, or someone, can take it apart and see how it works. 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. Reality: Decision making always involves uncertainty Even the simplest decisions carry some level of uncertainty. how the uncertainty can be resolved with various procedures or practices. 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. Scenario analysis. 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. Treatment of Risk in Economic Analysis: Risk analysis involves a situation in which the probabilities … 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. 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. Don’t let stress get the better of you. We then invite you to complete a short survey to submit your feedback. Please explore the topic and tools below. We will first look at decision making under risk, and we will then consider decision making under uncertainty. The four-step process helps us better address our emotional responses, name and confront them, and move forward with a rational decision. Either way, by inverting your problem you can focus on the known unknowns that matter to you. 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. The more time spent reflecting on how we make our business decisions, the better our outcomes will be. Interpreting data, research and situations requires interpretive skill. We’ll have a more complete picture, reducing the likelihood that we’ll rely upon well-worn thinking pathways and cognitive biases. 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. Diversity of thought and experience will also allow you to think holistically. Take a breath. In two separate columns, write down the pros and cons for one of your choices. On the other hand, we know risk management activities are normally carried out assuming the world is ordered and are easily understood. This is the typical case where the decision makers has data about past event such as market analysis, historical data, and so on. 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. 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. One decision-making tool useful in such situations is scenario analysis. You can take it apart and see how it works but it takes more time, knowledge and skill. Harvard Business Publishing is an affiliate of Harvard Business School. 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. To help my clients move from of obsessive worry to confident decision-making, I’ve developed this 4-step decision making protocol. The occurrences of such very uncertain situations are also an additional reason for central banks to rely upon what I call “collegial wisdom”. 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. Making Decisions Under Risk . 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. 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’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. 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. 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? This means that making informed and sound decisions requires thinking slowly, deliberately, and logically. 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. Sanchez of Decision Strategies Inc., a company that focuses on helping their clients gain clarity when making decisions in complex situations. The risk appetite statement helps you address uncertainty by setting boundaries and is a way to make your decisions defensible. It will also give you a better context for interpreting the answers, because you’ll know the lens through which they are being filtered. 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. staff incorrectly wear personal protective equipment when providing care to patients, E.g. 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). However, sometimes we have no choice. Someone emailed me a presentation entitled Introduction to Decision Analysis. 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. 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