Understanding Uncertainty Life is full of uncertainty!

Don’t judge quality of Distinguish good

a decision by how choices from good
well it turns out. consequences

Good choice / bad Bad choice / good

consequence consequence

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Acknowledge existence then systematically
of uncertainty. . . evaluate uncertainties

For each For each

major major
alternative, alternative,
ask: ask:

What might What is the

happen? likelihood it
(outcome) will happen?
(chance)

For each
major
alternative,
ask: Sam’s big
opportunity
What will be
its potential
impact?
(consequence)

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Alternative: Bid on Contract
Uncertainty: Government Response to the Bid
Outcome Chance Consequences
No Contract Least Likely Bad- need to reduce
staff, borrow heavily,
scramble for small
contracts
Partial Contract Most Likely Good – more stability,
decent profit Risk Profiles: A Closer Look
Full Contract Somewhat Likely Great – very profitable,
professionally
interesting, enhance
reputation

Identify key uncertainties Identify key uncertainties

Significantly influence Consider alternatives separately

consequences

Identify key uncertainties To identify key uncertainties

Consider uncertainties one at a time

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 If I choose this alternative…

ASK YOURSELF… What requirements for success have I

missed?

If I choose this alternative… If I choose this alternative…

What factors could harm its What kinds of changes could harm its
acceptance or its implementation? long-term success ?

If I choose this alternative… If I choose this alternative…

What kinds of external changes could What kinds of things tend to cause
harm its long-term success? problems in implementing this type of
decision?

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Define
outcomes

How Many? Assign

Chances
How to
describe?

Consult existing
information

Use your judgment

Ask Experts
Collect new data

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 Alt 1: Attend game & reschedule to
Which flight? Sunday

Alt 2: Stick with original plan Alt 3: Attend game & reschedule flight
later that night

Alt 3: Attend game & reschedule flight later

that night Clarify the
Uncertainty: Will the flight be late and, if so, consequences
how late?
Written
Outcome Chance Consequences
Arrives at Dulles no 80% Great! Will meet Mom &
more than 30” late make flight to London Qualitative
Arrives at Dulles 20% Bad. Will miss
more than 30” late connecting flight. Will Quantitative
incur hotel expenses
for Mom & me. Will
have to pay $800 in
reticketing.

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 Clarify the Clarify the
consequences consequences

Seriousness Seriousness

Likelihood

The Gibson’s House Purchase The Gibson’s House Purchase

Musts: Wants (continued):

Down payment < $20,000 Shelter for 2 cars
Monthly payment < $2,000 Public transportation nearby
Bedrooms: 4+ Convenient to schools
Bathrooms: 2+ Convenient to shopping, etc.
Location: Not downtown or 45 Workshop & storage space
minutes+ Stable resale value
Occupancy: w/in 60 days Attractive modern style
Good landscaping
Large play area for kids
Wants: Large, modern kitchen w/view
Minimum down payment Large comfortable family room
Low monthly payment Quiet Street, good
Location convenient to work neighborhood
Use present furnishings, drapes, Minimum maintenance costs
etc. Minimum risks – tax increase

Musts Analysis Wants Analysis

Using importance & achievement scores
Musts House A House B House C House A House C

Down Payment < $20,000 $17,500 $19,500 $16,000 Wants Wt. Sc. WS Sc. WS
Minimum down payment 6 $17,500 9 54 $16,000 10 60
Monthly payment < $2,000 $2,000 $2,500 $1,600 Lowest monthly payment 10 $2,000 9 90 $1,600 10 100

NO GO Location convenient to work 7 Good 10 70 OK 8 56

Use present furnishing, 5 Good 8 40 Very good 10 50
4 + Bedrooms 4 4 drapes
Shelter for 2 cars 4 Carport 7 28 Garage 10 40
2+ baths 2 2 Public transportation near 4 Bus 9 36 Bus close 10 40
Convenient to schools 8 .5 mile 7 56 .25 mile 10 80
Not downtown or 45 30 22 Convenient to shopping, etc. 7 I mile 7 49 .5 mile 10 70
minutes+ minutes minutes Workshop & storage space 2 Large 10 20 Poor 3 6
Occupancy within 60 45 days 45 days Stable resale value 7 Good 10 70 Good 10 70
days

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 Wants Analysis Adverse Consequences
House Purchase Example

House A House C
House A House C
Wants Wt. Sc. WS Sc. WS Pro. Ser. Pro. Ser.
Attractive modern style 5 Good 8 40 Excellent 10 50
Awkward social Hi Med Risk of basement Hi Hi
Good landscaping 4 New 10 40 OK 7 28
relations - flooding - major
Large play area for kids 5 Unfenced 7 35 Fenced 10 50 subordinate repairs
Large, modern kitchen w, 2 Good 10 20 Good 10 20 neighbor
view
Few playmates for Med Med Heavier Traffic from Med Hi
Large comfortable family 3 Yes 10 30 None 0 0 children new shopping center
room
Quiet street, good 4 Good 10 40 Fair 8 32 Inconvenience of Hi Hi
neighborhood Country Club across
Minimum maintenance costs 7 Good 10 70 Average 8 56 town
Minimum risk- tax increase 4 High 4 28 Low 10 40 Poor land for wife’s Hi Hi
gardening
Performance Total 804 848
Want Objectives

Adverse Consequences
House Purchase Example

House A House C

Pro. Ser. Pro. Ser.

Awkward social Hi Med Risk of basement Hi Hi
relations - flooding - major Risks don’t “cancel out”
subordinate repairs
neighbor other risks.
Few playmates for Med Med Heavier Traffic from Med Hi
children new shopping center
Inconvenience of Hi Hi
Country Club across
town
Poor land for wife’s Hi Hi
gardening

Janet’s Summer Party Janet’s Summer Party

Uncertainty: What will the weather do?

Outcome Chance Consequences
Rain Less likely Picnic a flop

Sunny Most likely Picnic a huge success

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Should the results of the
risk profile override your
best choice?