| 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?
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