How to handle uncertainty in decision-making?

Uncertainty is at play in decision-making scenarios where the outcome or the occurrence of an outcome is unknown. Such decision scenarios need to be analyzed and thought differently.

Here are a few examples; should you take up another job? Should you buy a house or invest in stocks? Should you hire internally or externally?Launch a new product now or later?

In all the examples above, there is an element of uncertainty. Why? Because in all the above examples, you can never be sure of an outcome before the decision is made and can only be proven right or wrong in hindsight.

How do you spot if there is uncertainty involved in your decision-making scenario?

If the answer to any of the below two questions is “Yes,” then you have an additional layer of uncertainty to take care of in your decision-making process.

• Do you know all the possible outcomes of the scenario once you make the decision?
• Do you know the probabilities of different possible outcomes?

Spotting where uncertainty is present in your decision-making scenarios is not hard. The challenge is to handle it.

Uncertainty does not imply risk. It means unknown

Absolute uncertainty is rare. In business and personal life, one can face uncertainty while making decisions. However, there are seldom occasions where the uncertainty is complete and absolute, and we know nothing about the outcome. Most of the time, we do have some sense of what possible direction a situation can take, even if we are not sure of the exact outcome.

Uncertainty is on the rise, and with the current economic and business landscape, it is far more common to encounter some degree of uncertainty.

Let’s look at how we can handle uncertainty in decision-making:

Imagine stepping into a new house blindfolded with nobody around to guide you, and you need to navigate your way through to the other side of the house.

Chances are you will take smaller steps, become more cautious and alert, and pay more attention to pointers you receive at each stage. This is a good visual analogy to understand what we can do to handle uncertainty better.

Let’s look at them now:

1. Reduce span of the decision — Limit the size, impact, or length of the outcome of your decision. Many product companies roll out new features or UX to a sample of their customer base, trying to test the waters before rolling it out to a broader audience. This is equivalent to taking smaller baby steps in our example.
2. Increase adaptiveness — Can you improve the ability to change quickly and adapt if an unexpected outcome emerges? How early can you find out what needs to be changed? How can you become more adaptive as you go around exploring the uncertain territory? These are some questions that one can purposefully think about while facing uncertainty.
3. Distinguish between a wrong decision and bad outcome — Uncertainty can result in unexpected outcomes, which could either be good or bad.

The quality of your decision-making process is not related to the quality of the outcome you get.

Be careful, especially in identifying the below two scenarios:

1. A Good decision led to a bad outcome — If the decision was right that resulted in a bad outcome, then it’s better to learn from our experience can try again.
2. A wrong decision led to a good outcome — This scenario is challenging to identify. Most people associate a good outcome with a good decision-making process, which is a psychological trap.

A good outcome may be due to chance and may not be repeatable. If you do get a favorable outcome when faced with uncertainty, use it as a learning opportunity to upgrade your decision-making process and see if you can; earn to spot uncertainties in this context and convert them into known risks and assign the probability of occurrence to them.

4. Keep heuristics at bay — When faced with uncertainty, our brains are wired to avoid deep thinking and jump into a solution or assumption, both of which can lead to bad decisions. Knowing that you have an element of “unknown” is much better than assuming the unknown.

5. Tap into more insights and perspectives — An excellent way to handle uncertainty is to get more people involved. Taking a diverse view will inform your thinking and improve your visibility to decide with more certainty.

Decision-making when stakes are high, and uncertainty present is not easy. Leaders have to make tough choices and bigger bets to take their organizations further. Handling uncertainty is a crucial leadership trait, the importance of which will only grow with time.

Picture: Unsplash — Markus Winkler