Dynamic management: Better decisions in uncertain times

Companies can’t predict the future, but they can build organizations that will survive and flourish under just about any possible future.

The economic shock of 2008, and the Great Recession that followed, didn’t just create profound uncertainty over the direction of the global economy. They also shook the confidence of many business leaders in their ability to see the future well enough to take bold action.

It’s not as if we don’t know how to make good decisions under uncertainty. The US Army developed scenario planning and war gaming in the 1950s. And advanced quantitative techniques, complete with decision trees and probability-based net-present-value (NPV) calculations, have been taught to MBA students since the 1960s. These approaches are extraordinarily valuable amid today’s volatility, and many well-run companies have adopted them, over the years, for activities such as capital budgeting.

Here’s the challenge: coping with uncertainty demands more than just the thoughtful analysis generated by these approaches (which, in any event, are rarely employed for all the business decisions where they would be useful). Profound uncertainty also amplifies the importance of making decisions when the time is right—that is to say, at the moment when the fog has lifted enough to make the choice more than a crap shoot, but before things are clear to everyone, including competitors.
Source: McKinsey Quarterly