In one of his last appearance in 2000 Peter Drucker, the man who invented management, gave a TV interview from Claremont, California. Do you know the subjects chosen by Peter Drucker in his speech? He spoke about efficiency and effectiveness; enhance the forces, the XXI century management concepts. Do you know the topics remain untouched by Peter Drucker on this interview? He did not speak about uncertainty or risk.
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Nowadays, not only managers but also journalists, all of us are all continuously talking about uncertainty and risk. We are constantly bombarded with uncertainty.
The political and economical threat in the Euro zone due to Brexit and the opportunity for Madrid City to attract assets from London. The hazard for the Gulf economies of the low oil prices and the opportunity for downstream companies to increase their margins.
There have been a swift from a context in which a sufficiently accurate forecast future is possible to a complex and ambiguous environment. The change happened in 2001 according to the model of Prof. Soto developed in 2005 which is the framework of my approach. In my opinion is the change in complexity level that brought about the financial crisis and not the other way around.
From 2001 we have to deal with uncertainty. I present the four models of complexity firstly a single forecast, secondly alternative sceneries, thirdly an umbrella of possible futures and finally a total ambiguity.
The first level of uncertainty is the existence of a sufficiently clear level of future forecast. This is the case for example of the professional career of the servants of English nobles at the beginning of the twentieth century. The servants knew that they enter as assistant of footman, then second footman, first footman and butler if they were lucky but were not going to be a farmer or a chauffeur.
In this environment the classic methodologies proposed by Drucker, Minztberg even Fayol, mining engineer and father of the functional organization, have full application.
The second level of uncertainty is a future composed of several possible alternative scenarios. An example of this would be to select the best project portfolio for a company. The company’s financial, human resources are finite and even scarce, and we have to select the set of projects that give us the most value. What tools can I use? Decision Analysis and Expected Monetary Value Analysis.
The third level of uncertainty is an umbrella of sceneries none of them preponderant. What will be the dominant social network in 2020?
Finally, as an extreme, an authentic ambiguity. What will be the impact of Brexit in the Spanish economy? To deal with this we can use analogies as comparing the current situation in the oil market with the one in 1986 and nonlinear dynamic models.
The projects by its nature have more uncertainties than continuous operations, if you add the complexity of the environment become very difficult to manage. The Project Management Institute PMI provide a proved risk management methodology to deal with positive risk (opportunities) or negative risk (threats).
According to a recent study, the success of projects is improved by 250% using proven methodologies.
It is vital to master risk management methodologies for two reasons: internal and external, internal to be able to select and implement successful projects, and from a commercial point of view, the risk plan is a key requirement in international tenders.
We need to use uncertainty management techniques in our personal and professional lives. The good news is the environment is uncertain and complex but the techniques to manage it are available and efficient.