Uncertainty and Risk: How Do You Plan for It?
Seize the opportunities presented by the unknown
The purpose in this first step is to come up with a complete and comprehensive list of the uncertain events that could happen to your firm. When thinking of the uncertainties, it is helpful to think of those things that the world can throw at you. At this stage you are not thinking about the decisions that you make, but rather the “events” that can happen. These can relate to: weather, government policies, employees and human resources, and competitor actions.
Start broad and then get more specific. The broad examples might reflect events like large-scale weather events or changes in government policy that impact how you do business and what that costs your feed and grain business. More specific events could be very local in nature, such as an action by a key competitor; the decision by one of your major long-term customers to take business to another firm; a member of your management team getting injured or taking sick such that they are unable to work and carry out the decisions that the business depends on from that person. Local weather events can also be an example of something at the micro level. These are all uncertain events that your business could face, and if they happen, would have a significant impact on your bottom line.
2. Identify strategic choices for the firm and consider the inter-relationships between uncertainties and the choices
At this stage you want to identify for each of the uncertainties that you noted in No. 1, strategic responses that you and your firm could make. This is the stage where you identify potential decisions or actions. These are the things that you can “do.” You might think about mapping this out as a decision tree. Start off with several initial branches of your tree, one for each of the uncertainties that you identified in No. 1. Then from each of the first round of branches insert another set of branches. On each of these new branches, identify a possible strategic response that you and your firm could take to that uncertain event. By the time you have finished, you will have a very comprehensive diagram with possible events and a whole set of strategic choices.
3. Develop internally consistent visions of the future
At this stage you can take your comprehensive diagram from No. 2, and consolidate it into something more useful. Examine the comprehensive diagram, and using your judgment and expertise as a manager develop a set of internally consistent visions of the future for your firm. So, how many of these visions should you develop? Teisburg specifically indicates that it is not appropriate for an outsider to dictate how many different visions to formulate — rather that will depend on your industry and what works best for you. The idea here is to develop a set of plausible paths that the future could hold for your business. We suggest something greater than two or three but fewer than 10.
For example, say that one of your risks is that a key competitor is purchased by a new owner, who appears to have a relatively aggressive competitive streak. Plausible responses might be:
- Do nothing
- Seek out a buyer for your business: an outside buyer, or sell to the expanding competitor
- Expand your business on your own: slightly, moderately, aggressively
- Merge with a different competitor
- Purchase one of your regional competitors
These are eight plausible paths, each of which would require a different plan to execute. While our example is generic, if it were to occur in your marketplace — you could fill in the names of the players and make determinations as to an appropriate strategy.
4. Check whether uncertainty is critical to decisions
Now consider each of the uncertainties and the responses that you have laid out. Ask yourself if there is really anything that you can do associated with this uncertainty. If there are actions that you can take ahead of time, such that the impact of the event will be different for your business, then these are uncertainties for you to pay attention to. For all of those uncertainties where there is nothing with respect to your actions that you would do differently irrespective of the event — then these are uncertainties for you to “put on the back burner.” In other words, pay attention to those uncertainties that are critical to the decisions that you would make.
