Three Steps To Deal With Uncertainty Without Killing Yourself In The Process


It could be my childhood upbringing and influences in life that steered me into risk management. My father fled communist Russia at 10 with his brother and whatever he could carry on his back. He eventually made it to China but his father, brother, cousins, and grandparents weren't so lucky. My father-in-law had a similar experience fleeing partition in Bengal with his life. Perhaps those stories and experiences have colored my thinking. I'm sure they have, and perhaps they help explain why I've been working in risk and crisis management for over 30 years. 


Three Steps

The most important things I've learned about dealing with uncertainty are in the Boy Scout motto 'Be prepared' but the three things that make this idea actionable are:

  1. Work out what is possible

  2. Look for lead indicators

  3. Have a Plan-B

1. Work out what is possible

You could call this 'scenario modeling'. It means thinking about all the things that could happen, eliminating the impossible, and looking at the competing hypotheses that you come up with. 

In the broadest sense, everything is possible. But let's pretend, for the sake of argument, that the universe isn't about to self destruct, and worrying about being struck by a meteorite during breakfast probably shouldn't take a lot of your focus. 


"The good news is that this pandemic will prepare the world for subsequent, and likely worse, pandemics."

When it comes to working out what is important, the Stroud Matrix suggests you focus on the stuff that is both likely and consequential. This includes pandemics, but given that we are in the middle of a one already, you might like to look downstream at scenarios such as:

  • Global depression

  • Civil unrest

  • National (or corporate or personal) bankruptcies

  • Unemployment

  • Food shortages

  • Isolationism, populism, and nationalism




Don't forget the positives scenarios. Some stocks will go up in value, some companies will support and extend their work from home policies, opportunities may turn up in the property market, and fresh business opportunities abound.


We're also seeing a lot of philanthropy, new research, and communities pulling together. Staying with this theme of the benefits, this current pandemic is relatively mild but is preparing the world for subsequent and likely worse pandemics.

Anything likely to happen, but won't have a significant impact if it does, is what we call 'routine'. This includes flat tires, plumbing problems, and toothaches. Things you should be able to manage without a corporate crisis plan.

  When it comes to the unlikely and insignificant... it's what we might call 'business as usual' aka stuff that probably won't happen and won't matter if it does.


"On a long enough time frame, every location will either be abandoned, destroyed, or experience civil unrest."

As for the black and white swans (the significant but unlikely) please refer to Plan B below.


2. Lead indicators

Lead indicators are part of the key to doing well in times of uncertainty. It's not as complicated as it sounds. Imagine you live in a nation where civil unrest is a credible scenario. You do, so it shouldn't be all that hard. On a long enough time frame, every location will either be abandoned, destroyed or experience civil unrest. Probably all three.


Sudan, Yemen, Papua New Guinea, Syria, are examples of where law and order have already failed. Dozens of other nations are at risk or 'failing states' and any pandemic (including this one) could push them over the edge. 

For the uninitiated 'civil unrest' is a polite term for riots, assaults, the breakdown of law and order, and potentially the downstream consequences such as food shortages, transport, mayhem, pestilence, and infrastructure failures.

You'll know it when you're experiencing civil unrest but let's consider some lead indicators:


  • Peaceful demonstrations in the streets 

  • Food shortages

  • Widespread unemployment

  • Second or third waves of pandemic

  • Failing to develop a vaccine

  • A mutation leading to a more lethal strain of the coronavirus

You can do the same thing for anything that concerns you. Unemployment figures are a lead indicator for a failing economy, civil unrest, bankruptcies, and probably deflation. Prior to food shortages, some lead indicators might include rising prices or empty supermarket shelves.


When you're trying to work out which scenarios are more credible, or about to eventuate, you might find the Analysis of Competing Hypothesis (ACH) helpful. 

3. Plan-B


Plan B as a concept is simple enough to understand. In execution, it requires a little forethought and a lot of understanding of what can go wrong. It mostly revolves around consequence management. The focus is on what to do if something goes wrong. 

Plan B only includes things that are under your control. For example, there are many conspiracy theories and disinformation regarding the coronavirus pandemic. Dire warnings about privacy issues, 5G causing coronavirus, or 'proof' that coronavirus was deliberately released, and so on. These can be amusing but irrelevant because I can't influence such things. My focus is on dealing with the consequences of real life, whether or not they are the result of a conspiracy.


Apparently there are global conspiracies to make money from coronavirus? Some of them are harmful, and many of them are secret (we sometimes call it commercially sensitive information) and from what I can see, we call the collective plots to make money ... capitalism.


Is it unfair if some companies adapt to the new reality faster than others? Probably not. Is it unfair if certain industries are subsidized by the taxpayer? Possibly. Can I change any of that? No.


Do I have the time to dig into good data from reliable sources. Anecdotes such as "A bystander was heard to say ... " or "Some doctors I spoke to told me ... " aren't evidence. They might have emotional pull but they aren't helpful for decision making. 

But back to Plan B. If it's so obvious, why don't more people have them? Plan B as an idea is simple, but the execution requires these key elements:


  1. What specific data/events/issues/risks does the Plan B address? Fire, flood, unemployment, food shortages, etc. One Plan B might cover them all or you might need several Plan Bs for several different events/scenarios. 

  2. You must have a Plan B already in place (including any resources) before you press the 'Go' button on Plan A. If you wait for Plan A to fail before you develop Plan B, you're reacting to a crisis. And if you still need information, training, or resources before you start your Plan B, you definitely don't have a Plan B.

  3. Plan B is all about consequence management. Anything you do to reduce the likelihood of an out-of-course event is still Plan A.

  4. If you don't have a Plan C in place, the first step after turning Plan B into the new Plan A is to create a Plan B.

Likely Scenarios

I'm an optimist and can see the positive in everything, but I'm concerned about the direction the world is heading, not just in terms of coronavirus but particularly the economic and civil disruption that could come our way. 

In my best-case scenario, we'll find a vaccine that will be widely available by the end of 2021 and the economy will recover in 2022. In my worst-case scenario ... these days of lockdown are 'the good old days'. 

The most likely scenario that seems to present in my modeling looks something like:


  • most of us will basically be OK, but hardships are coming; they just won't be evenly distributed

  • we will likely see 2 years of economic decline followed by 10 years of stagflation (much like the 1930s)

  • when stock markets start reflecting the future earnings of companies in a period of record unemployment we are likely to see further drops in the order of another 25%

  • the most likely future includes significant unemployment, starvation, and civil unrest in 25% of nations

  • the longer the coronavirus circulates in the human population, the more likely it is to mutate into something more dangerous which would cause countries to close  their borders for 2+ years

  • the demand side of the coin is likely to drop resulting in deflation in areas such as oil, minerals, energy, cafes, cinemas, new cars

  • inflation will stalk some sectors including food, medical consumables, and anything which relies on long supply chains

  • international trade is likely to be restricted to carefully regulated bilateral agreements. You might, for example, find that retailers can buy washing machines easily from South Korea but not South America, food from Australia but not Africa, electronics from Taiwan but not China.

  • if we see a 1930s geopolitical scenario, we no longer have a single superpower and the world becomes a multi-polar bundle of uncertainty where opportunistic despots stop rattling sabers and start wars

There are some 'good' (not great) scenarios where we find a vaccine and the real economy recovers in a few years, but they are less likely because they require everything to go well. And we are already not going well. 


Conclusion

I don't know where you live or what your resources are, but my suggestion is that you give thought to the following three things, in the context of current circumstances:  


  1. Think about what is possible, and the consequences for you, your family, your organization.

  2. Decide which lead indicators are most significant and keep a watching brief in the scientific journals and reliable publications. Build a list such as this one to monitor lead indicators.

  3. Have a Plan B; and a Plan C (and buy/learn/build what you might need).


Last but not least, look for the silver linings, the blessings, and the opportunities. Be grateful for whatever you have. Right now, we are living through an epoch. We are experiencing events that people will be talking about for thousands of years.


Don't forget to enjoy the ride. There will be opportunities.