Dealing with uncertainty with the hypothesis-driven process
We can’t tell the future. We acknowledge that we don’t know what we don’t know. There are even things we know we don’t know. There are therefore more gaps in our thinking than we have surety in. In fact, every positive decision we make may be one step away from failure simply because we didn’t know what we didn’t know (remember bounded rationality?). Hence, even when we have made the right decision, we cannot keep it delivering the right outcomes. At any point in time, that right decision might yield a bad outcome. Does that make the decision wrong? Absolutely not. But does that mean that we are doomed to uncertainty in all our decisions? Again, the answer is no. So how can we deal with this uncertainty? Enter the hypothesis-driven process.
The hypothesis-driven process is one that helps strategic thinkers deal with the uncertainty of the future by testing the assumptions of their thinking.
There are two ways tracks: one is market testing, and the other was mental simulation. Market testing is a phase when we have a new idea, a new product, a new service, and bring it to the market to test its value proposition. It is an active process of trial and error; of failing fast and failing cheap. The aim of the market test is to uncover everything that can trip up the product or service before it is fully rolled out. Make more mistakes in the beginning, so that you can fill the gaps in your thinking, and launch more successfully.
The other track is mental simulation. This takes the decision and puts it to the test, to identify the limits of the outcomes. How is this done?
Bring out your option
Lay down all the assumptions about your option
Apply scenario thinking – the best case, worst case and most-likely case scenarios
Identify the limits of your thinking which lie between the best and worst case scenarios
Work out ways to improve your situation, if possible
Make your decision for the option with the most appropriate risk level
Building the best- and worst-case scenarios
The best-case scenario is built when ALL your assumptions are right; and your worst-case scenario is built when ALL your assumptions are wrong. When you build each scenario, you build a mental picture of the limits of your situation.
Working for the best, preparing for the worst
The hypothesis-driven process is a means for us to manage the risks of our decisions, allowing us to work towards the best case scenario, but preparing us for the worst. In so doing, we make our thinking more robust, and arrive at the most risk-appropriate decision.
And that is how we deal with uncertainty.