Posted by: John Dillard | Posted on: March 1st, 2012 | 4 Comments
In large corporations and in government clients, I often observe a great deal of consternation and uncertainty when it comes to assessing future scenarios, and more importantly, what to DO about those scenarios once they have been identified. Executives really don’t have time to sit down and analyze every “what if” and their teams sometimes don’t know how to go about it, much less how to adjust strategy and/or operations as a result of those futures.
What’s worse, I can’t tell you how many “futures studies” and scenario analyses I’ve seen that — while incredibly interesting — don’t really tell anyone what to do right now about it.
What do I do if our competitors figure out a way to apply carbon nanotube research to a key product line?
What happens to the physician practices my hospital just acquired if medicare payments get cut?
What difference does it make if Brazil nationalizes our supplier of an important raw material?
How will I change if my adversary discovers a way to deny or deceive my best intelligence collection method?
In short, those studies often don’t make the leap from “interesting” to “useful” very often. There is no “so what.”
That is very, very bad news if you either a) spent a lot of money on such a study or b) need to *do* something, like make an investment choice or pick a strategy.
There is hope for the frustrated, overextended, and action-oriented exective. Many tools and techniques are out there that can help, but the one that I think is cleanest and (more importantly) user-friendly — for moderately complex choices — is the decision tree. This post is the first of several I’ll write on the topic, so let’s start with the basics.
Decision Trees are a way to think through the probability of a number of different scenarios, and, in turn, determine the potential financial (or otherwise quantitative) impact of each. They can be applied to almost anything, from the likelihood of terrorist events and their consequences to starting a new business to the possible scenarios that play out if you expand an existing business. I’ve mostly used them in sessions to explore possibilities (and get the perception of the leaders of what’s going to happen), or with R&D clients to think about potential project financial value. It’s a way of applying solid risk analysis to a variety of business problems, whether they’re organizational, national security, or investment-related. The flexibility of the tree is quite remarkable.
In the next post on these, I’ll explore a little more about why you might need one, and several examples applied to both commercial and government problems.