Faris Yakob wrote an article titled How strategy turns uncertainty into risk.
« Risk is about known unknowns; the odds of any face coming up when you roll a die are measurable. Risk needs to be managed, but not eliminated — because risk is also where competitive performance is created. »
« Uncertainty is different. It is both unknown unknowns that can’t be measured and our confidence about the stability of the immediate future. »
« If the future is too uncertain, or businesses feel it is, they can’t make reasonable estimations about the likelihood or rate of return. Businesses use discounted cash flow analysis to estimate the future value of investments, a rolling up of all attributable future cash flows discounted over time to compare to the present cost of capital… The more uncertain the future, the more that future cash flow has to be discounted. »
« Strategy provides the tools to analyze uncertainty in useful ways. We never truly know what is going to happen but the levels of confidence in the market fluctuate on sentiment and sensationalism. »
« We begin to manage uncertainty by establishing boundaries around and within it. Just as people can only use bounded rationality, using what they know and who they are to make decisions, so companies create boundaries to manage the unknown. »
« The longer the lockdown continues, the longer and larger the knock-on effects to the economy. Economic activity can’t completely recover until there is a vaccine, which could be eighteen months away. So our boundaries of time are this week, this quarter and through next year, and the scale of the impact is historic. »
« The outlook is very negative, but we do have some clarity. We know that all of our competitors and customers are adapting to the same conditions. Effective brand behavior requires loops of activity, operating in the immediate term as more information filters in, whilst managing the next quarter’s existing and re-allocations, and managing cash flow to give the company as much breathing room as possible. It’s a delicate balancing act, of limiting factors and limited resources, but that’s what strategy has always been for. »
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