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发表于 2010-1-10 23:14:06
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1.10 Comment
Summary
1. Concept of uncertainty
Uncertainty, arises out of the kaleidoscopic shifting of numerous volatile variables, is clarified as randomness where we cannot know the probabilities by economist Frank Knight. The volatile variables can be consumers’ preferences, regulation, technology, etc.
2. Concept of risk
Risk is defined as randomness with knowable probabilities by Frank Knight.
3. Differences between risk and uncertainty
From the concepts of these two words, the radical difference lies in whether the probabilities are known or not.
Uncertainty can’t tell the probabilities, while the probabilities of risk are known.
To be more specific, risk arises in simple yes/no choices, where ex ante probabilities to the occurrence; while it became uncertainty under messy situations, because the variety of possible actions is nearly infinite.
What’s more, the distinction also hinges on the range of possible actions they can employ to achieve a desired outcome.
4. Method, how to deal with the uncertainties.
In the world full of harsh Darwinian pressure, there is a simple rule, adapt or die.
The ability to deal with the uncertainties is a significant element in a company’s comprehensive strength.
The article provides two ways to handle.
One is adaption, which is composed of strategic anticipation and organizational agility.
The other is uncertainty absorption.
1)Adaption.
① strategic anticipation
What is strategic anticipation?
Strategic anticipation is a cognitive process of selecting the appropriate mental model for a situation and revising it when necessary.
The method is to gather real-time data from multiple sources, look for patterns from the present and past, and select mental models to represent the situation.
But models are not always right, they may vary according to each objective situation.
Even the best models may outlive its utility as circumstances change, so managers should always be open to the possibility of abandoning their model.
② organizational agility
What is organizational agility?
Organizational agility refers to an organization’s flexibility in undertaking new activities or abandoning old ones in the light of changed situation.
The challenges adaption poses
① balance the defense and offence.
Defense means to establish the core business as the most critical link, because the solid core business ensures that the company to stay in the game long enough to seize golden opportunities; while offence means to make other investments as some other ways to bring in money, for the company will be vulnerable if the core business suffers long-term depression.
② manage a portfolio of internal initiatives.
If a company always has back-up plans, it is likely that the company will act quickly when facing unexpected situation.
2)Uncertainty absorption
What is uncertainty absorption?
It is resilience toward unexpected events, good or bad, even if it is not predicted.
How to absorb uncertainty?
Blocking and tackling steps, such as lowering fixed costs or increasing operating efficiency.
Comment
1.uncertainty and risk
Uncertainty, is defined by economist Frank Knight as randomness where we cannot know probabilities, while risk is clarified as randomness where we can know probabilities.
From my perspective, uncertainty is the accumulation of risks.
Many simple yes/no choices forced the decision maker to balance in order to achieve the desired outcome. Managers face uncertainty while investors face risk, because to achieve a desired outcome, what the investors need to do is to make a simple choice, to invest or not, but what the managers need to decide is much more than that, such as how to improve the ability to absorb risk, how to make up if uncertainties happen, etc.
2.adaption versus absorption
Chinese companies always prefer mix both of them to do the risk management, but I reckon it even make more trouble than just choose one, because it involves much more elements to balance, and too some extent, these two methods may run into contradictions, the adaption calls for flexibility, while absorption requires people to use un-change to respond to the changes.
This definitely challenges the un-developed risk management of China.
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