If you are a photography buff, you will be familiar with bracketing. It is the action of taking over-exposed and under-exposed shots. Exposure is the amount of light entering the camera, and when too much light enters, the image will be very bright and you will see a washed-out image. It is said to be over-exposed. When too little light enters the camera, the image will be very dark, and it is said to be under-exposed. In the past, when we used film, we neither wanted the photograph to be over- nor under-exposed. But these days, with digital photography, we may deliberately have over and under-exposed images. This is because the different exposures show up different things. The best is, when we overlay these different images, we can get a “perfect” picture. This picture is called a high-dynamic range (HDR) image.
What has this got to do with the future?
None of us can tell the future, and over the ages, some people have resorted to preternatural means to predict its outcome. The results are seldom stellar. But we have a tool, if not to predict, at least to be able to handle it. I call it bracketing, although some of you might know it as scenario thinking. Bracketing is applied to the various options for a solution to your situation, allowing you to assess the risks of each of them and identify ways to mitigate those risks. Here's how it works...
Bracketing for the future
Our thoughts, and therefore our expectations, of the future are impacted by our assumptions about it. If I assumed that I would win the $10 million national lottery, then my outlook will be much rosier than if I assumed otherwise. Or if I assumed that our major client would sign the contract again this year, I would not have to work so hard. My actions for the future are fuelled by my assumptions about it. But what if our assumptions did not pan out? What if I didn’t win the $10M? What if our major client didn’t sign the contract? What would we do then? I would have to find new clients, and maybe even work outside my comfort zone! Both of these are scenarios of the future are the limits of our bracket – the over-exposed being the upper bracket and the under-exposed settings being the lower bracket.
Bracketing and scenario thinking
In scenario thinking we take the worst-case and the best-case scenarios. These may seem to correlate with our brackets but there is a difference. When we apply the worst-case scenario, we normally think about a situation that combines all the bad news, internal and external. Hence even changes to the economy, the price of oil, or the stock-market index may be fodder for the worst case. The best-case scenario is simply the opposite. Not that it is wrong, and some situations demand that we look at external factors, but if we did not ring-fence the image, we might get lost in a sea of changing variables, and finding mitigating solutions may be difficult. It may not be helpful.
In bracketing, we adjust the image based solely on our assumptions about the options, keeping all other extraneous factors constant. The lower bracket will be one where our assumptions are wrong; and the upper bracket is one where they are right. These paint a possibility of our future within a more stable frame, thereby allowing us to devise actions to maximize our position.
Let’s look at an example
Suppose Jason is thinking of setting up a learning centre in a remote part of town because there are not many of such establishments, and kids there will benefit from his new method of learning. Let’s bracket this and see what the future might hold for him and how he should tread with this idea…
There are enough students in this part of town to sustain the centre;
I can get at least 30 students a month;
They can afford me fee of $320 per month;
Rental is no more than $4,000 a month
The upper bracket is when all the assumptions are right. If that is the case, not only are there 30 students a month, but the centre attracts more than 70 students, each paying $320. Very soon, the space for the centre will be too small. But before going out and commiting to another lease, it may be better to manage the demand. Hence, there may be a need to implement incremental pricing to keep the enrolment size manageable. We can then take on a new premise if the demand continues to grow, even when fees are more than double.
The lower bracket is when all the assumptions are wrong. In this case, it is best not to secure the lease but to conduct a market survey. Test the idea by volunteering at the local community centre, giving lessons with the new learning methodology. Then survey the students and their parents and see if they will come to the centre if there was one. Commit only if the number of “yeses” is 80 or more, so that it gives us a buffer to work with (people might opt out later after pricing and location and timing are revealed).
By bracketing, Jason can now adjust his decision to open the centre. He needs to assess if the downside is cheap enough for him to bypass the lower bracket, or to play it safe and test the market. His upper bracket primes him to look out for triggers that need to be put in place so that he knows how to react if his assumptions were too conservative in the first place. Either way, he will be prepared to take on the uncertain future with some degree of confidence.
So next time you have to deal with an uncertain future, bracket it!