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Uncertainty Thoughts

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The University of Chicago economist Frank Knight, in Risk, Uncertainty, and Profit first established notable differences between risk and uncertainty, foremost – a formal separation of the terms, which prior had been analogous. Second, recognizing the characteristics that risk is measurable, and uncertainty is by its very nature is not. Uncertainty is inherently unpredictable and surprising. This work further represents a genesis of a spit in business intelligence practices, between the limits of measurement of risk, and the limits of the sensing, awareness and imagination in anticipation of what may be possible within the increasing complexity of the world. Moving forward there are no clear-shared division or defined limits of either.

In the book How to Measure Anything: Finding the Value of Intangibles in Business, Douglas Hubbard would again rejoin the terms – describing risk as a phase state of uncertainty, a singular negative class within a taxonomy of uncertainty, with many nuanced possibilities assigned with probability values. Knight further proposed in 1921 that ‘the “practicalism” of the times is a passing phase’. It was not. Probabilistic prediction or deterministic extrapolation still exists, however their limits, accuracy, reliability and completeness are widely questioned. Today we know – the map is not the territory. “I’m a model, you know what I mean?”

US Army War College credo, describes the qualities of our present context as being volatile, uncertain, complex and ambiguous (VUCA). One might suggest that this context has long existed and is more of a tradition rather than a trend. Meaning that volatility, uncertainty, complexity and ambiguity within our systems and our environments have always been the barrier forces that block our understanding the near or far future with any degree of certainty. VUCA time is – all the time.

There will always be information at work in the present beyond our perception. “Measured Uncertainty” does not exist; acting upon its measured results would be to act on incorrect or incomplete information with unknown severity. The general favor of numbers, and the preference – or fetish – for measurement and predictability can be harmful only when it becomes the sole informant of human pursuits. When does risk assessment and management, and its effects on decision making itself become a form of risk creation?

Everyday. Around every corner people will assess risk, participate and purchase in ways that you and even they do not anticipate.
Here we might insert a suggestion to carefully and cautiously “pay attention to what is important, not just what is quantifiable.” We must be cognizant of the core definitions, meanings and impacts of terms, tools and processes of near term success in order to defer their evolution into terminal dogmas and strategic rigidities within our organizations.

In order to further understand uncertainty – our lack of knowledge of obtainable or unobtainable facts – we can turn to our more imaginative and creative faculties to generate samples of possibility to complement traditional intelligence tools.
In the report Foresighting Around the World: A Review of Seven Best-In-Kind Programs created for the US dept of energy, researchers at the Battelle Seattle Research Center identify a key link between foresight and the management of uncertainty:

“the only way to deal with the uncertainty of the future is to create various possible scenarios. In this respect, foresighting is extremely useful.”

Today foresight commonly informs current strategy assessment and future strategy development. In recent years greater integration of foresight methodologies and strategic management of innovation suggests scenarios, the act of critical storytelling are a robust tools for enabling more explorative, deeper future oriented dialogue. What if the unlikely prove existing, or the impossible became likely and obvious? Organizational preparedness, the creation of strategic responses to possible scenarios that describe the unknown and uncertain is no longer a luxury.


Written by rthomas

August 12, 2012 at 3:54 pm

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