Tuesday, January 26, 2010

Types of Uncertainty

Types of Uncertainty
In looking to the future we are dealing with uncertainty.

There are three main types of uncertainty:

Risks – Where historical evidence of similar events allows us to estimate the probabilities of future outcomes.

Structural uncertainties – where the event is unique enough not to offer evidence of such probabilities.

Unknowable – where we cannot even imagine the event

We are well used to handling ‘ordinary’ risks. Managers regularly come into contact with such risks and indeed, this is aspect of entrepreneur activity managers are supposed to even relish.

Where no probable pattern of outcomes can be derived from previous experience the decision involves become much more a matter of judgment; and this is the area where scenario planning can make major contribution.
Types of Uncertainty
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