Towards a Better Measurement of Uncertainty and Risk

10/01/2023:

Towards a Better Measurement of Uncertainty and Risk

Even in the adolescent universe of perpetual employee perfection -- where all employees are knowledgeable, efficient, and effective -- employee productivity is reliant upon management productivity, or more correctly put: the profound impact of the lack of it. While employees invariably bear the brunt of stress and blame, more often than not the root cause for poor performance is invariably the lack of management productivity.

Our schools of business management have led us astray, under the strong influence of laissez-faire economics and the self-aggrandizement motivations it encourages. Organizations, groups, and teams succeed or fail because of people. And management productivity constitutes a key variable in that process.

Conduct your own thought experiment. Take any two groups of the same type -- with the same organizational structure and goals -- and change the actual individuals who occupy their incumbent roles and responsibilities. The dynamics between the individuals occupying these organization, groups, and their requisite individual teams/groups has now been inexorably altered. Different individuals have different life histories, different assumptions, different motivations, and invariably have different ways of doing things.

These differences are central to our understanding of the human condition. Everyone knows that it is the line supervisor -- and how they manage or don't manage on a day-to-day basis -- that will determine whether your day will be interesting, bearable, or a chaotic nightmare. Likewise, line supervisors have managers who manage them, and those managers have other more senior managers. And upward it goes, until finally we have Leaders who set policy and strategy, and make final decisions.

In our complex and often crowded modern world, we are all subject to the views, inclinations, and decisions of others in both small and large ways.

With the possible exception of Athenian Democracy, or its modern equivalent, these are the immutable facts of collective human action, regardless of size, organizational structure, or management style. And -- lest we forget - that democratic practice did not include the opinions or sensibilities of either women or slaves.

One of the best books written on efficient and effective decision-making is Douglas Hubbard's, "How to Measure Anything" (3rd Ed.). Hubbard quotes the late mathematician and cosmologist, Sir Herbert Bondi, "We find no sense in talking about something unless we specify how we measure it; a definition by the method of measuring a quantity is the one sure way of avoiding talking nonsense" (Hubbard, p. 83).

For the limited purposes of this article, Hubbard makes two important points:

1). Most of the time we all make decisions where it is assumed that the degree of uncertainty and risk are either unknowable or would require so much effort that the resources and time spent would exceed their cost-benefit; and,

2). "A decision can be one big thing or many little things" (Hubbard, p. 79).

Hubbard's book makes quick work countering the justification of the former assertion, pointing out that assuming that something is unknowable and thus unmeasurable prevents us from trying to measure it at all.

The second assertion, I think is self-evident. We can all think of personal decisions made in our own lives where the choices made were discrete, single events, and those that were a chain of iterative choices. In fact, I would maintain that the vast majority of our day-to-day business decisions are of the latter type, resting upon the somewhat inflexible foundation of other previous decisions, large and small.

Hubbard’s observations show us why many business decision outcomes turn out to be less than optimal. There is great difficulty in unwinding the unanticipated effects of previously made decisions, regardless of whether those preceding decision outcomes were considered to be optimal or sub-optimal. Decisions are invariably made in response to the outcomes of earlier decisions. In turn, it is the totality of all these decisions that substantially mold the organization's internal culture and commonly held assumption base.

It is when internal culture clashes with individual and internal group efforts to achieve strategic and technical goals that the hard work begins. It is then that tripartite of human behavior -- denial, avoidance, and rationalization -- rears their ugly heads. An appreciation of group dynamics, conflict resolution techniques, and asking good questions are essential to better assess the degree of uncertainty and risk for each of the decisions we are obliged to make, individually and collectively.

Note: A pdf copy of this article can be found at: https://www.mcl-associates.com/downloads/UncertaintyAndRisk.pdf

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