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August 10, 2003

Calculating for Uncertainty

In today's economy, the only thing we know for certain is that more uncertainty lies ahead. Scenario-based planning could help you strategize for the unknown, plan technology investments — and even save your company

by Frank J. Bernhard

Continued from Page 2

Optimizing for Uncertainty

Being backed into a corner with few choices can sometimes be healthy. Companies that learn how to manage through lean times are often better prepared to handle growth. As the airline carrier quickly discovered, technology investments needed to return results quickly and on target. Strategically speaking, the technology investment would either accelerate or delay the future that the company desired. Despite a few stumbles, the carrier's calm and calculated thinking prevailed, and the company reached its planning objective.

The CIO's team felt a sense of comfort in having accounted for the range of potential technical and market-oriented snafus that might have come its way in the course of implementation. As a byproduct of the planning exercise, the team chose to reduce the initial scope of the CRM expansion to allow for putting additional functionality into call center integration — a project that initially had been sidelined. Confident that it had conceived of every possible roadblock, the carrier couldn't have anticipated the stunning, tragic events of Sept. 11, 2001. What was an economic malaise became a nightmare, complete with new and unforeseen security, procedural, and bureaucratic requirements.

Unwavering in its commitment to deliver on the project — but also accepting the added burdens — the team kept its focus on the original planning diagram to reach revenue objectives. Looking back, the team's leader acknowledged the role of calculating for uncertainty as integral to a design process that also included lessons from previous projects and a continuous flow of real-time information about customer demands. Uncertain outcomes had always been considered, but the team had never before tried to reconcile calculations about uncertainty with the standard processes of deciding on a technology direction. The carrier saw that technology investments could no longer be justified by mere speculation; the decision process had to be overhauled with sharper calculations about the uncertain future.

The fundamental shift occurred when the carrier changed its definition of a successful project. By defining risk and reward and aligning resources and project scope to an optimal point, the design team felt in control; it could now plan for uncertain events that unavoidably influence decisions. One wrong move would now be far less damaging than a string of successive decisions haphazardly leading to failure. By taking a certain number of potential missteps into the calculations, the team could manage how the organization would deal with changed circumstances more effectively.

Crux of the Matter

Courting the future means that companies must accept a degree of uncertainty in every aspect of planning. The inflow of information will never recede — it will come in ever-greater volume. The crux of how you put strategy in motion hinges on how well your team can convert information into a real knowledge utility and further integrate this knowledge into a formulaic cast of assumptions. To achieve explicit results amid the unknown, your organization will need to muster unprecedented diligence in how it incorporates the latest knowledge.

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Traditional scientific methods have a place in the next stage of economic evolution. The flow of information will bring greater respect to the emerging science of "decisioneering." By taking deliberate steps toward dealing with uncertainty and using the process to create opportunities, your organization will gain valuable foresight into the future.

Frank J. Bernhard [fbernhard@ocg-us.com] is an author, technology economist, and partner with OMNI Consulting Group LLP, an economic advisory and assurance firm with offices located in Davis, Calif. His forthcoming book, The Uncertainty Principle (AMACOM, 2004), outlines a framework for companies seeking competitive advantage in an era of economic oscillation.