The Role of Future Flexibility and Uncertainty In Decision Making

Traditional decision making strategies are losing their worth with the passage of time. Business leaders and executives are looking for new methods and techniques to improve the corporate decision making for enhancing the performance of their organisations. For instance, more and more executives are using uncertainty and “decision flexibility” as primary input instead of precise cash flows and technical analysis to make decisions.

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The decisions companies are taking are not independent or singular but they interact with each other. The decisions made keeping in view the company’s portfolio and product strategy might depend upon each other to produce the desired results. Most importantly, three basic metrics are considered to standardize the output of these decisions. These metrics are financial value of the decisions made, the amount of risk involved and potential.

Micro and Macro Uncertainties:
In the context of above discussion, there are two types of uncertainties decision makers have to consider. The Macro uncertainties are concerned with a larger number of market participants. These uncertainties might be related to country’s economy, policy, demographics and other events taking place in certain areas at certain times.
Micro uncertainties on other hand are specific to a certain project or decision. Micro uncertainties include cost issues, timelines, market potential such as pricing and quantity, technical risks and competitive actions by your rivals.

Stochastic and Probabilistic Uncertainties:
Macro and Micro uncertainties can be further divided into two very distinct types that are stochastic and probabilistic uncertainties.

  • Stochastic Uncertainties:
    These are observable over the time such as the growth of the economy, demand of certain products, inflation, cost of material and labour etc.
  • Probabilistic Uncertainties:
    As the title suggests, this type of of uncertainty is concerned with something that is very probable to happen such as a new competitor entering in the market or a technological change taking place.

What is Flexibility?
It is very easy to understand the concept of Flexibility in the decision making process. For instance, you have the flexibility to initiate or not initiate a decision or stage or delay it. Similarly, you can accelerate or slow down the decision making process or abandon it altogether. You can also shrink the scope of the project, switch from one way of doing things to others and hibernate for a while if you want to. These decisions are flexible because you are not going to commit to them today and might take them any time in future.

Uncertainties may Influence Each Other:
As discussed above, the uncertainties prevailing in an organisation may correlate with each other. For instance, correlation may exist between price and demand, cost and quantity and new and marketed products etc. Different events such as pandemics, elections, war and acts of terrorism may also impact multiple aspects of uncertainty in the likes of cost and timelines etc.

Summing up, there is nothing wrong in saying that business leaders have to denounce traditional decision making processes in favour of new techniques with uncertainties and flexibility as main inputs. Only this way, they will be able to improve the performance of their organisations and stand the stiff market competition successfully.

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