Building resilience and value through risk connectivity
Why uncertainty matters
Previously we set out some sources of uncertainty that will impact firms in the event of a UK no-deal exist from the EU, a serious and realistic prospect and one to which businesses large and small must respond.
In this post I explain how exploring uncertainty can support businesses in producing a first-pass Brexit impact assessment. I qualify this as a ‘first-pass’ since it serves to size the range of impact ahead of further analysis and refinement. Simple transparent models are often more value in practice than complex simulations.
There is almost daily talk about the uncertainties that surround Brexit, however it is important to be able to distinguish different forms of uncertainty in order to best respond:
Event uncertainty is the context that something will happen, or not. Tariffs may be imposed on the products you sell, or they may not. Deliveries may be affected by border delays, or they may not. Event probability is assessed on a scale of 0 to 1.
Variability uncertainty associated with estimates such as time and cost, caused by a lack of experience of a particular activity, or complexity due the number of influencing factors and interdependencies.Forecasting Post-Brexit sales will be subject to variability as businesses work through the implications of the myriad changes on their business and their customers.
Ambiguity put simply, is anything that can have two or more meanings and in which several interpretations are plausible. Ambiguity in contracts and service level agreements may be exposed as Britain leaves the EU and enters unchartered territory.
Systemic uncertainty refers to the risk of a breakdown of an entire system rather than simply the failure of individual parts. It captures the risk of a cascading failure caused by interconnections within the system. Risk Insights Explorer is unique in being able to model and visualise systemic uncertainty.