UNCERTAINTY INTO CRISIS?

 

This is always the case with uncertainty

 

Every economic and political crisis involved a certain number of people deluding themselves to some degree. It is always the "...unknown unknowns " according to Donald Rumsfeld,that we need to worry about. We will never have perfect knowledge so there will always be some uncertainty to deal with. We need to try and examine how these elements can be measured. The number of break ins is a cardinal measure in that we can look back at historical data on the number of break ins in say a town and have some basis for say setting insurance premiums for a town and its relevant districts. The probability of a break in, in a certain district of a town is say 1/6 or 16.67% based on what has happened in that district

 

 We then have ordinal probability where you can say that one event is more likely to occur than another but you cannot assign a probability % to it very easily e.g. One team is more likely to win a match than another but we cannot really quantify this very well. The final point here is there are events for which probabilities will remain unknown -- however some commentators believe that they can calculate probabilities for this third type of event. The classic difference between risk and uncertainty. It is clear that uncertainty has the strongest influence in those areas of an economy  like investment and financial markets and this can affect the whole economy very quickly indeed.

 

In the 2008 banking crisis certain events were given miniscule probabilities in sophisticated financial models. However if those events ever occured the results would be catastrophic and they did occur, and although they were identified as being possible -the probabilities assigned to them occuring were so low that in effect their occurence was effectively discounted. It should never have been so - We should not take false comfort in believing we can estimate every probability accurately.

 

We can plan for uncertainty by trying to guess some scenarios which could occur and plan for them as best we can even if the probabilities of them occurring do seem to be somewhat incalculable. Though planning for a a Martian invasion might be taking things to far. We could plan on dealing with the outcomes of some unlikely events occurring rather than the events themselves. This might help us a bit more. This could translate into crisis management or planning approaches. We need to recognise that assigning probabilities for some events is practically impossible and it is a simple yes\no view as to whether they will occur or not. These may be sudden unforeseen events but each crisis is usually different but there is a number of common steps which may need to be taken to try and cope with something you have not anticipated could or would have happened. Coral Bell the management writer looked at the following steps:

 

1. Analyse the situation - As quickly as possible What is happening and why - What will happen if nothing  is done? How quickly do we need to act? Who needs to be involved to tackle the crisis and what resources have we got- People equipment, finance, assistance from other organisations and access to key influencers.

2. Draw up an action plan along with contingencies and set up a crisis management team with key communication channels to key players.

3. Focus on the important issues first - leave others on the back burner

4. Monitor the action plan outputs and and ensure you get information to change the action plans as soon as possible if that is required.

Time will need to be bought as much as possible - things will have to happen quickly but also effectively.

These principles can be applied to any event which has occurred as a result of unmeasurable uncertainty. It can only give the steps needing to be taken and not the more detailed reactions required in the action plan.

The best way is to practice dealing with the unexpected and honing your uncertainty management skills at the same time. We will all have to do it some time - so let's start now?

BEING CERTAIN ABOUT UNCERTAINTY

Can we ever be certain about uncertainty?

It always amuses me, these quants who believe they can measure everything -- even uncertainty - They even build the measurement of uncertainty into complex economic\mathematical models and think they can predict it. There are unique events at the margin and by the time they become statistically significant they have gone,perhaps never to happen again. Like Nicholas Naseem Taleb - who argued for Black Swan type occurrences. No-one had ever seen a black swan and therefore no-one ever expected to see one but that does not mean that Black Swans do not exist.

 

The Black Swan theory of events is a metaphor that describes an event that is a surprise (to the observer), has a major effect, and after the fact is often wrongly rationalised with the benefit of hindsight and everyone is good at doing that. These events are hard to predict, rare and impact hugely on society. They are beyond what we would normally expect. Their probability is difficult to estimate because they have never\rarely happened before and so we don't have much hard evidence to go on. In addition many people are blind or ignore uncertainty and even do not appreciate the huge impacts such events can produce. This mindset needs to change.

 

  Dutch explorer Willem de Vlamingh discovered black swans in Western Australia in 1697 -So you see they do exist. We need to think of a unique event which might affect us hugely in the next 5 years. How might we and our respective organisations cope with something we had never ever thought would happen? Could 9\11 really have been predicted and how did we cope with it when it happened? We seem to think we can plan for everything but do we need a generalised intuitive approach to cope with uncertainty when something has never happened before and\or we do not have enough experience of similar events to create an action plan for coping with them? Some times we need to be intuitive,impulsive and experimental to cope with these outliers. Yes sometimes we need to improvise and we need to get better at doing that.

Indeed Nicholas Taleeb has just published a book on how we can gain from disorder. We all need to be antifragile. He argues that the worst case scenario will be exceeded - instead of trying to predict the future we should try to benefit from these shocks (Black Swans) when they occur.Put more scantly we need to learn from mistakes. Too much stability lets risks accumulate until there is another disaster.Sometimes stability is false - like when dictators keep power by force -- society is then stable but is not healthy. Can we use these unexpected events to improve our position? We need to know when the gains from a surprising position\event outweigh the losses.Over reliance on one employer can imply that sudden unemployment will cause a huge shock to the individual concerned.

The review of Taleeeb's book can be read in the link below:

 http://www.economist.com/news/books-and-arts/21566619-how-surprises-make-you-stronger-stress-best



In certain circumstances -surprises can make you stronger - Image from the Economist

 

 

PLANNING, BUDGETTING AND INNOVATING FOR THE FUTURE



The Future- How are we preparing for it?

 

Each organisation operates at two levels where the future is concerned.There is the budget that tries to keep existing operations on an even keel and can in some circumstances be reduced under pressures from the trade cycle. What is the least spend we need to make to keep going. Not very ambitious I am sure. If there is a future growth strategy then it should be addressed by the question, "What is the necessary funding to produce optimal results from new initiatives". This is a budget for growing and developing your organisation - it needs to be there constantly to assist you in exploiting new opportunities.

 

The two levels are linked and one may spring from the other, however too often the growth level budget is not taken seriously enough or it is just a simple wish list. We all wish for new exciting developments but there is very often little or no seed funding to push those new agendas forward. This can be frustrating but budgets for new initiatives cannot be built on dreams alone. It is however always important not to lose sight of the dream but still keeping your feet on the ground.

 

This probably leads me into the proposition that the future will never happen on its own or shouldn't happen on its own. The future requires thoughts and actions and deeds to-day. There are as many if not more risks of doing little or nothing with your organisation than doing something. Perhaps many short \medium term plans overlap into the longer term plan. Planning needs to be effective over a time span of development -- Long range thinking and planning should stop us from always sticking with the products and services we know, just because we know them and they have worked for us in the past.Long range planning and thinking should rescue us from short term decisions about our futures.

 

Such thoughts lead us into difficult territory, which parts of our organisation should we play down and which should we push? Are we even at this stage at all? The question we all face is not what we should do tomorrow but what should we do right now to be ready for tomorrow's challenges. Do we plan for the future in everything we do today? Probably not but we should try to adopt this approach. As Peter Drucker argued, "We should deal with the futurity of present decisions."

 

Everyone is always tempted to stick with their core competencies but there is seldom a core competence of innovation. Does your organisation have an innovation section that monitors innovation elsewhere and promotes it within your own organisation? Are there product and service innovation targets which have to be achieved each year? Do we have an annual innovation target as far as products and services are concerned? If we are not innovating we are not preparing for the future with actions we can take to-day.

 

If we do innovate - let's not do it on the cheap,let's get the resources to achieve this, as relying on existing fully committed resources will probably ensure that innovation will fail and the future will devour us. None of us would wish that to happen.

 

FREE SPEECH AND A FREE PRESS - EMBRACING GREATER RESPONSIBILITY?

 

 

Are we doing too much to defend press freedom or not enough?

 

There seems to be much talk of the boundaries of press freedom in the wake of the Leverson enquiry ( which incidentally cost circa £6m to put on). What can people report about other people without straying into their private and personal points of view and works? People do have a right to privacy but not if any actions they undertake, which may harm certain sections or indeed the whole public, go un-reported. There is a judgement to be made about whether a report will inform society about a group or individual who is pursuing actions which can harm any element of society. In that case it can be argued that that particular person\group has foregone the right of privacy over those particular potentially harmful actions. The press does report on the human interest dimensions of celebrities for example their sexual partners or even their preferred films, theatre shows etc.It is argued that society is interested in the lives of celebrities and therefore the press has a right to report on those lives. To an extent that argument is true, however celebrities must also be treated with care as regards aspects of their personal lives just like everyone else, however to be a celebrity and in the public eye means that a person must be aware that they will be under much greater press scrutiny than if they were just normal people and they will need to behave accordingly. This latter point is inevitable. If a celebrity pursues certain courses of action he\she will be aware they are in greater danger of wider exposure of this than you or I.

 

How do we define the press?  Given the explosion in blogging and the interweb we are all crypto journalists now. We can write blogs,state opinions and make arguments. Arguments about press freedom do not just apply to the professional journalist but to everyone who writes opinion pieces which are accessible over the web and elsewhere. We now have a greater flexibility to express our views but an increased responsibility to ensure that our views are expressed fairly and honestly without causing needless offence and heartache to any third party. This means we have to act responsibly both the professional journalist and the amateur blogger. This is doubly the case because any e-mail you send or any electronic\digital comment you make cannot be hidden from the wider community - therefore we do need to think carefully sometimes about what we say and report.

 

Freedom of speech is cherished in the UK but it is under pressure in certain instances.Absolute freedom of speech does not exist here because it is illegal to incite racial hatred or physical violence against third parties and perpetrators of these acts can go to prison. Similarly the libel and slander laws in the UK are very strict in the sense that if you say or write something that a certain group does not agree with (libel) or you say something directly about that person or group that they do not like (slander) -- you can find yourself in the eye of a very expensive legal case. Sometimes the threat of such action is enough to silence critical reports about a person or group's activities. A journalist recently made some comments about the state of Bahrain concerning its lack of democracy and treatment of political prisoners and was threatened with a writ.The late great Robert Maxwell was a great exponent of this. When there were critical reports about his financial empire and dealings he would resort to the courts and this would emasculate a "free" press when in reality the activities of such a person should have been given the full glare of publicity and public scrutiny. The UK in recent years has become a safe haven for very rich and powerful people, often foreign oligarchs who have used its legal system to protect themselves from controversial though valid scrutiny and challenge. Journalists have become frightened by this class of people and have sometimes not reported the stories they should have but reported other stories they shouldn't have. 

 

The press and others should report on issues that will significantly affect us all in the way we live our lives -- However they should do this in a responsible way. The responsible approach is often missing. All the issues around phone hacking  were and are illegal and should be dealt with as such. Clearly those journalistic actions were irresponsible although I am uneasy about the state steeping in to determine which stories should be aired in the public interest and which should not be.

 

Whatever the final approach - journalists and bloggers should not feel fettered in reporting very important and pertinent issues about individual and groups -- if that were the case then wrongdoers like Jimmy Saville may have been exposed much earlier. A major exception to this could be issues of national security however these issues can be properly considered by experienced counsellors.

 

I would not like to see a society where press freedom becomes so emasculated that reports about occurrences which people need to know about and act upon are hidden from them. That really would not only be a crisis of press freedom but of democracy itself.