5 steps to managing uncertainty

‘Managing uncertainty’ is a recurring and challenging aspect of leadership. Following his presentation at our recent governance conference, we asked Garry Honey of Better Boards, to summarise his 5-steps approach for governing bodies.

Uncertainty is a challenge for management boards and governing bodies within higher education

Acronyms like TUNA (turbulent-uncertain-novel-ambiguous) or VUCA (volatile, uncertain, complex, ambiguous) have been used to qualify new turbulent or volatile environments in which decisions need to be made. It is no coincidence that the key words ‘uncertainty’ and ‘ambiguity’ occur in both acronyms. The question we try to answer is – how should higher education leaders manage uncertainty to best advantage?

A governing body has a distinctly different role from a management board, yet there are some aspects shared by both. The most significant is having a vision of the future and making decisions around strategy and risk within the context of an environment containing uncertainty. Managing uncertainty is a leadership challenge.

An active approach

The first step towards managing uncertainty is to adopt an active approach to reducing risk which involves rejecting the traditional risk matrix based on probability and impact. This standard approach to risk management can be worse than useless as it can lead to misplaced confidence that all risks are known and understood; it ignores the fact that problems for organisations generally have multiple causes rather than a single risk event. The approach also leads managers and boards to ignore risks which they think will have a low probability but which could have a disastrous result. Instead, re-profile risk based on different axes: ease of control and ease of prediction. This will enable the leadership to actively reduce risk, and determine specific actions to improve control or prediction – a real benefit.

What’s on the risk register?

The second step is to separate risk, which can be estimated and assessed, from uncertainty which is simply unknown. Many risk registers conflate the two yet there is a growing realisation that a separation can be helpful. It is a matter of determining whether there is sufficient information to determine an outcome, where there is not there is uncertainty. The risk register should focus on outcomes which can be measured, the remainder being uncertainties.

Four types of uncertainty

The third step is to appreciate the four different types of uncertainty ranging from known-knowns to unknown-unknowns. The distinction between known-unknowns (jigsaw-type) and unknown-knowns (library-type) is most critical as correct labelling will determine the most suitable response. In each case information needs to be gathered but the method and location will be different.

Setting up coping mechanisms

The fourth step is the coping mechanism to deal with different types of uncertainty and the resources required to secure and act on it. This is where the governing body needs to work with the management board to calculate the cost-benefit of reducing uncertainty, especially where in some cases forecasts and estimates will inevitably be the more prudent option.

Avoid groupthink: be brave

The fifth and final step in managing uncertainty is to eliminate misplaced certainty. This is the human element inherent in cognitive bias and assumptions. This is challenging the conventional wisdom and beliefs that can render a board too complacent for sound judgement: anchoring, referencing, confirmation bias, over optimism, risk aversion, cognitive dissonance and groupthink.

Effective governance and leadership requires collective responsibility, yet a board is comprised of a disparate group of individuals so achieving this can be difficult. Improving board effectiveness is not simply a matter of getting the right people or processes, but of securing the right mind-set around the table. Judgement is the framework in which decisions are made collectively so this needs to be well-informed and free from prejudice. Bravery is needed to challenge some assumptions.

Why is bravery important? Because forecasting the future is rarely accurate, a cynic will say there are only two types of forecast: lucky and wrong! Higher education faces uncertainties about success metrics. Historically measured by research excellence and global ranking, today universities are expected to perform in student satisfaction and alumni employability rankings. Many universities failed to achieve the rankings they expected in TEF, because their priorities are on research excellence and the funding this attracts. The resources for research are not the same as for teaching.

Bravery is also important in the governing body when it comes to defining value to other stakeholders, such as the Treasury or Government. Who in your remuneration committee will challenge a vice-chancellor salary award or suggest that staff morale should be a higher priority? Furthermore, how should a governing body view the recruitment of foreign students to courses because they pay higher fees and represent a lucrative income stream?

The biggest challenge for universities comes in the wake of the NAO report suggesting that the sector as a whole delivers poor value for money. A loan-based system has a very different dynamic to a grant-based one, creating ‘customers’ who decide on the cost-benefit of a university education within the context of their career.  For the next generation student debt repayment could become a burden as big as mortgage repayment for ours. There is uncertainty about the purpose of higher education and hence how value is determined. There are 130 universities in the UK which, as one delegate commented ‘all operate the same strategy’. Is this sustainable?

Garry Honey is the co-founder of Better Boards, leadership advisors on governance and risk issues. He has worked with several universities and leading business schools together with his colleague and co-founder Paul Moxey. Better Boards works with governing bodies and leadership teams to help them implement this five step process to managing uncertainty. 

For more on the Leadership Foundation’s series of programmes and events for those working in governance in higher education, including our new Academic Governance resources visit: www.lfhe.ac.uk/governance

 

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