Decision-Making and Strategic Planning: how to fight Uncertainty

Decision making and Strategy planning: How to fight UncertaintyDecision-making by its nature has a natural connection to long-term planning: by trying our best to make our decisions better we’re trying to influence the future. Taking into account our decisions and their possible consecutive outcomes is practically the essence of planning strategically. The problem is: how can we know the results of our future decisions to plan our next move? How can we fight the uncertainty of the future?

As the concept of the “Decision-making tree” is already well engraved in our minds, let’s use the metaphor of the tree to discuss how our decisions influence the future. Basically, you can say that the issue at hand can be represented by the trunk of the tree, the places of division into multiple branches are the decision moments and the branches with leaves are the resulting scenarios.

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The problem with this model is that it doesn’t say anything about our goals. Decision-making without clear goals is completely random and therefore – meaningless.

But if we introduce a goal to our model, for example – climbing the tree to reach the best apple, we can understand the parameters for a good decision. A good decision must move us forward towards our real goal by not letting us astray in pursuit of other goals. A sequence of good decisions would therefore result in a winning strategy.

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But how to formulate your winning strategy?

For starters, you should know to distinguish between three types of strategies that make up the winning strategy, and they are: the Core strategy, the Basic strategy and the Hedging strategy.

If you look closely at our model, you’ll notice that all possible branches have one thing in common – they are attached to the trunk of the tree. No matter how many possible strategies there are, all of them are derived from the issue at hand, and therefore – all of them have something in common. If this is the case, then a Core Strategy can be formulated, stating what should be done IN ANY CASE. For example, when our goal is to reach an apple, regardless of the specific branch it’s on, we’ll still need to CLIMB UP in the general direction of the tree trunk. As trivial as it may sound, climbing up is the Core Strategy for our scenario.

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For a more practical scenario, such as creating a new business, the Core strategy would be a clear understanding of HOW ARE YOU GOING TO MAKE MONEY? What is your vision of your business? Would you be selling a product or a service? Who is the target audience for this product or service? Are you aiming big or small?

Trying to discuss specific issues of production, staffing and marketing before formulating a Core strategy for making money would be close to meaningless, but after it has been formulated, you can target these issues with the help of Basic Strategy.

Basic strategy is dependent on our ability to choose the right path at the intersection of the tree branches. This is done by measuring the available options versus our goal, meaning that this is where we apply our decision-making process. In the presence of clear goal, and with the help of some data analysis on the environment, we can predict the coming intersection safely enough, arriving there ready for the task of decision-making. You cannot always predict what your decision would be when you come to the intersection, but by formulating a Basic strategy you will know what and how many decisions would need to be made.

If we get back to the example of creating a new business, Basic strategy would answer a question of HOW ARE YOU GOING TO SUCCEED at your plan of making money? What are your practical objectives? How are you planning to receive a relative advantage on other participants of your market niche? Are you planning to have lower costs, better products, or are you the first to enter the niche? The reason for why most new businesses close after their first year on the market is that their creators did not bother to answer the questions presented by the need to formulate a Core and a Basic strategy.

Finally, you’ll need a Hedging Strategy to account for possible contingencies. There is always a possibility of events not assumed by the current state of the environment. But you don’t have to plan for all of them. Everyone on Earth would be affected by the fall of a giant meteorite, but as we currently lack the resources to prevent or even somehow mitigate such disaster – no strategy needs to be built for dealing with it. Concentrate on what’s probable, controllable and will have a significant impact if not dealt with.

When opening a new business or starting a project, you should have a contingency plan for what are you going to do if things do not proceed as you initially planned. Do you know when to cut your losses and leave the unsuccessful project in favor of more promising one? Do you know the optimal procedure for declaring bankruptcy? We all start new projects hoping for the best, but we must know what to do if things didn’t turn our way.

So, as you can see, the perceived uncertainty of the future can be reduced with proper planning and by understanding the place of decision-making in the process of reaching long-term goals. Let’s just hope that a meteorite doesn’t fall any soon 🙂

4 thoughts on “Decision-Making and Strategic Planning: how to fight Uncertainty

  1. Anya:
    This is a side issue, but do you have recent data on new business success rate?
    (as in “most new businesses close after their first year”).

  2. Thank you!
    The data I had was slightly more optimistic, but it’s old data.
    The “http://www.sba.gov/” site is off line right now, but I’ll check it later.

    The argument I am trying to support (to prove) is that:
    a) most businesses and projects fail and
    b) the root cause is the mismanagement of requirements and resources.

    Back to your model, it started me thinking what happens when my purpose is not only to crop, but to grow better fruit … etc. 🙂 Thks.

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