Do you know the difference between risk and uncertainty and why it is important?
Predicting the company’s future has never been trickier than today. At the time of sudden, and widespread changes in operational environment, particularly in times of deeper crises, traditional company reports and the way the information is organised cease to be useful. And because organisations continue to shape their decisions around this kind of information, they often unknowingly expose their businesses to higher levels of risk and uncertainty. This is how even predictable situations become unpredictable.
Companies that can make distinction between risk and uncertainty usually perform better than others. In practical terms, they are more capable of narrowing the gap between plans and reality and can tolerate uncertainty with greater ease.
So what is the difference? Rolf Dobelli explains:
“Risk means that the probabilities are known. Uncertainty means that the probabilities are unknown.
On the basis of risk, you can decide whether or not to take a gamble. In the realm of uncertainty, though, it’s much harder to make decisions. The terms risk and uncertainty are as frequently mixed up as cappuccino and latte macchiato — with much graver consequences. You can make calculations with risk, but not with uncertainty. The 300-year-old science of risk is called statistics. A host of professors deal with it, but not a single textbook exists on the subject of uncertainty. Because of this, we try to squeeze ambiguity into risk categories, but it doesn’t really fit.”
Even if we learn how to differentiate between risk and uncertainty, we still need to transform this understanding into business decisions. To do that, we need to acknowledge the existence of self-induced uncertainties and learn how to ‘read’ them. It is about discovery of changes in interactions between people and processes when things don’t work as expected.
In aviation, this comes through disruption cause diagnostics described in my book Beyond Airline Disruptions , 1st edition, and more widely in the revised second edition subtitled ‘Thinking and Managing Anew’. Being able to grasp this knowledge especially at critical times can make the difference between business survival and failure.
Let’s spend some time to rethink the way we worked, so that once the crisis is over we can do the rework. We should aim at creating a framework that ensures less risky and a more certain future.
Contact me, Jasenka Rapajic (email@example.com), if you would like additional information or guidance with doing the post-crises reworking together.