ARTICLE: 3 Ways to Prepare for a Future You Can’t Predict

Prior to the pandemic, I had been advising a business on forecasting their projected revenue based on their sales pipeline. This involved meticulously reviewing their leads to determine both the size of the potential sale and the likelihood the sale would close in order to calculate the expected value of each lead, then turning these into a weighted average that could serve as a more accurate and reliable forecast of projected revenue.

After the pandemic hit, I went back to them to ask if they had made adjustments to the forecasts I’d helped them create. They hadn’t. “There’s too much uncertainty,” they said. “Because we don’t have any idea of what’s going to happen, we figured we’d just wait until things settle down and we have more information before updating our forecasts.”

In other words, even though they understood the value of making these kinds of forecasts, and using expected values to improve the accuracy of their revenue projections, they were so overwhelmed by uncertainty that they didn’t want to even attempt updating their plans for the future.

This client was hardly the only company thinking this way. As Marker’s Rob Walker pointed out in a recent piece, “Rather than offer a new outlook, many [companies] have withdrawn from projections altogether — conceding, in effect, ‘We have absolutely no idea what’s going to happen; your guess is as good as ours.’”

There is no such thing as “not deciding.” Choosing not to decide, or to “wait and see,” is a decision in itself.

Businesses are stuck facing difficult strategic decisions about how to best survive the pandemic and position themselves to participate in the recovery: Should you be conserving cash, or burning it to acquire or retain customers for the future? Should you be laying off employees, furloughing them, or reducing compensation — or using the slack in the labor market to go on a hiring spree, like Instacart? If your business has been shuttered, when will it be safe to reopen?

It may seem impossible to find a “right” answer to these questions when no one really knows when a vaccine or effective treatments for Covid-19 are expected. How can you make good decisions when no one knows whether the recovery will be V-shaped or U-shaped or worse?

When the stakes are as high as they are right now, there’s a tendency to believe that you have to get it “right” before making any decisions. Here’s why that’s wrong.

First, there is fundamentally no such thing as “not deciding.” Choosing not to decide, or to “wait and see,” is a decision in itself. We saw the disastrous consequences of this approach in the early days of the pandemic, as a delayed response from governments cost thousands of lives.

In the business world, a decision not to make strategic changes or update your forecasts until there is more stability in the environment is a decision to stay the strategic course you were already on or to fly blind, having no strategy at all.

Second, it makes no sense to wait for a stable and predictable decision-making environment — not just because of the uncertainties we face in this pandemic, but because there has never been such a thing as a stable and predictable environment. Getting comfortable with making decisions in this period of obvious uncertainty will improve your decision-making even when things go back to “normal,” when the future will still remain uncertain.

So rather than engage in a futile attempt to make no decisions, or hoping that your gut decisions work out for the best, here is a framework for decision-making under uncertainty based on three simple principles:

1. Prioritize reversibility

You can more easily accommodate uncertainty when you are flexible. This means looking for options that have a low cost to quit or reverse. When it’s hard to be confident placing a big bet on a singular, particular future, look for options that you can change or reverse at a reasonable cost.

Picking options that carry a lower cost to change course allows for more agility. Making decisions that carry a lower cost to abandon in favor of picking a new option (including options you may have rejected in the past) allows you to better handle the uncertainty.

Furloughing employees is more reversible than laying them off, and salary cuts are more reversible still than furloughs.

Conserving cash is more reversible than spending cash. If you spend cash reserves and the world later tells you that you need a big runway, you can’t unspend that money. If you conserve cash and the world later gives you signals that you should spend cash, you can more easily reverse the decision to conserve.

The layoffs and the steep rise in employment we’ve seen over the last couple of months is an indication that many businesses intuitively recognize the importance of conserving cash. Still, there are different tactics for conserving cash and you should consider reversibility when choosing among those tactics as well. Furloughing employees is more reversible than laying them off, and salary cuts are more reversible still than furloughs. If closing shop to cut costs means losing customers, consider what options are most likely to get those customers to come back when you reopen — like selling them discounted gift cards that they can use after your reopening.

This doesn’t mean that the more reversible decision is always the right option, or even necessarily the better one, as there will always be a multitude of factors to consider, but reversibility is an especially important factor in periods of high uncertainty. We can only ever make a decision based on what we know now, andas we update our knowledge when new, crucial information comes to light, it’s likely that many things we thought we knew will turn out to be inaccurate.

In a shifting information landscape like the one we’re in, put a premium on your ability to be agile and flexible. Easily reversible decisions allow for more agility.

2. Exercise options in parallel

If you feel paralyzed by the difficulty of planning for multiple futures at once, look for ways in which you can “exercise options in parallel,” or place bets on more than one future scenario.

Exercising multiple options helps you to gather information more quickly about which options are fruitful, blunts the impact of any single option faring poorly, and defrays the opportunity cost of picking one option over another.

This is the idea behind A/B testing. If you don’t have enough information to decide between two marketing campaigns, deploy both to find out which works best. If you can’t decide which software feature your users will like the best, release one to a small set of users and the other to another set of users.

There is never so much stability in the world that it would be a bad idea to hedge against different ways the future might unfold.

In the current context, if you are having trouble deciding whether to bet on a fast recovery or a long recession, you can identify the decisions you might make under each scenario and then figure out which ones to implement at the same time. You might decide that reducing your workforce in order to conserve capital is necessary to survive a long recession but that if the recovery is quick you would need a quality sales force in place. Instead of making cuts across the board, you could prepare for both possible futures by reducing your workforce in some areas and keeping your star salesperson on in order to be prepared for a faster recovery.

Hedging is a version of exercising multiple options in parallel. A hedge is something you pay for that will reduce the impact of a negative outcome in the future, making them an effective tool for planning for more than one future simultaneously.

Buying insurance is probably the most common form of hedging. You aren’t planning for a future in which your house burns down, but buying fire insurance helps you hedge against a future in which it does. Wimbledon famously paid extra for pandemic insurance for years (since most general business insurance policies explicitly exclude pandemic-related losses), allowing them to be prepared for a future in which the tournament was canceled due to a pandemic. When Covid-19 struck, their $141 million insurance payout helped Wimbledon mitigate the financial impact of canceling the tournament.

Looking for ways to exercise options in parallel is a helpful frame to think about options whether you’re in the middle of a pandemic or under more normal circumstances. There is never so much stability in the world that it would be a bad idea to hedge against different ways the future might unfold.

3. Establish signposts

Considering the reversibility of options and exercising them in parallel gives you room to adjust as the world offers you new information or more clarity, and releases you from having to treat your decisions as binary: one choice to the exclusion of others, one chance to get it right or wrong, either nailing it or blowing it.

But how do you know when to reverse a decision, or invest more heavily in one option? It might seem obvious that you would naturally adjust your approach as the information landscape changes, but the truth is that few of us behave that way or react quickly enough to new information. Once we make a decision, we tend to look for and notice information that confirms our prior decisions as correct.

When the world sends us signals that we should modify or change a decision, we may not get the message.

It’s not enough to commit to an option (or set of options) that you can later change. You also need to establish, in advance, the signposts that will signal that you should modify or change your course.

If you’re thinking about reopening your restaurant because you think that the risk of coronavirus infection isn’t as high in the summer months, you might decide to open the outdoor spaces in your restaurant. If infections rise, you’ll have the option to reverse that decision. But in the event that infections do rise, it will be hard to escape the feeling that your decision to reopen was somehow “wrong” — and given that no one likes that feeling, you’ll look for ways to justify sticking with your decision, ignore the new information, or wait for more signs to be really sure you were wrong before deciding to reverse course.

Instead, if you establish in advance what would specifically have to be true of the world for you to shut back down (infection rates rising above a certain threshold, revised guidelines from local health officials, and so on) you’ll be less likely to discount those signals when they appear.

Before making any big decisions, engage in a simple exercise of mental time travel. Imagine what additional information or later developments would lead you to revise the decision. If you’re considering layoffs or keeping a business closed, ask, “What things would have to be true of the world in the future that would serve as a sign that I should hire back my employees, or reopen my business?”

By doing this in advance, you create a set of signposts to pay attention to as you evaluate whether to stay the course or change direction. Coming up with these signposts also reminds you that your initial decision is not a declaration of right or wrong but, rather, a decision made given the information that was available at the time.

The more you can live in the space between right and wrong, understanding that no choice is ever a perfect prediction of the future, the more you will be able to make great decisions when uncertainty is amplified — and when the illusion of stability returns.