How do you decide what to do when nothing seems clear?
The country is gripped by uncertainty over Brexit, the state of the economy and our trading relationship with key partners. Running a business is challenging enough without the feeling that you’re trying to navigate through a thick fog. But as a small business leader you can use the same technique as your FTSE counterparts to bring certainty in uncertain times and ensure that you’re in control of your business’s destiny.
How? Scenario analysis will help you to plan for the future by providing a lens through which to view seeming chaos and offers a process by which to make decisions in a swirling world of ambiguity.
It enables you to consider the impact on your business of a range of potential outcomes. But when everything is up in the air how do you know which outcomes to consider?
1. Taking a helicopter view. Having a high-level perspective of how an issue could affect your business is important in enabling you to decide which scenarios to focus on, as well as giving you a sense of what your priorities should be. No business has the resources to consider every possible outcome, so most would tend to concentrate on those they think are most likely, that are likely to have the biggest impact or that keep them awake at night.
2. Be realistic. Once you’ve decided on your scenarios, how do you decide which are the best options available to tackle those? Although it might seem like you have too many to choose from, you probably don’t. Some can be quickly discarded because they’re just not viable – you simply couldn’t choose them, either because the law or regulator won’t allow them, they’re extortionately expensive or would do too much damage to your business. So, you probably have just a handful of credible choices.
3. Focus on what really matters. When deciding which is your best option, you must be brutal about prioritising what’s most important for your company’s future. Separate the ‘must-haves’ from the ‘nice-to-haves’. Some outcomes will have a mixed impact, in that they might benefit one part of your business but harm another. Work out whether the costs outweigh the benefits. Cushioning the impact of an outcome on one part of your business could, if you’re not careful, soak up so many resources that it threatens the entire enterprise. Losing that business might be painful but not disastrous. Be ruthless – your company’s survival could depend on it.
4. Cut through the noise. It’s important to be very clear about who will make the final decision – and if they’re the right person. That’s one of the two of the biggest causes of poor decision-making, along with not knowing enough to make an informed choice. Discussion on the various outcomes and options must stop eventually, and even in small businesses, it’s important to separate the opinion makers from the decision makers. You want experts involved in the process who can tell you what impact a decision could have, or who can get things done. But just because they know a lot about the business doesn’t mean they’re the right person to take a decision on which the company’s future might hang. That must be the person who has to deal with the consequences of that choice.
6. Get comfortable with risk. As an insurer, Hiscox deal with risk every day. But all of us live with uncertainty. We all make decisions despite not always knowing all of the facts or the potential consequences. The trouble is that uncertainty causes fear. The less we know the more it causes us to act irrationally. That’s because uncertainty causes the part of the brain that creates fear and anxiety to work overtime. Scientists have even coined a phrase for it: ‘the uncertainty effect”. A study showed that people wouldn’t take an uncertain bet because their fear of losing outweighs the potential rewards, even though they could win more than they lose. It means we have a tendency to not take risks, even if there’s a good chance they might pay off.
The key is to create a process for decision-making that helps you to manage ambiguity so you can see the wood for the trees. By embracing an acceptable level of risk then you can take decisions that will help your business to thrive in a world of uncertainty.
Our preferred partner of Business Insurance, Hiscox, are experts in small business insurance and understand the various risks your small business faces. This means should the unexpected happen, their comprehensive range of insurance products will provide the right cover against the risks unique to your work activities and the right policy to protect against claims. IoD members can save 5% for the lifetime of your policy.
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