Paul Saffo’s “Cone of Uncertainty”

Technology Forecaster Paul Saffo wrote about forecasts in the Harvard Business Review, and was interviewed by The Tech museum in San Jose. He articulates very well the fact that forecasts are all about uncertainty.

Here are a few sentences from his “Rule 1: Define a Cone of Uncertainty”:

“As a decision maker, you ultimately have to rely on your intuition and judgment. There’s no getting around that in a world of uncertainty. But effective forecasting provides essential context that informs your intuition. It broadens your understanding by revealing overlooked possibilities and exposing unexamined assumptions regarding hoped-for outcomes. At the same time, it narrows the decision space within which you must exercise your intuition.

“I visualize this process as mapping a cone of uncertainty, a tool I use to delineate possibilities that extend out from a particular moment or event.

“The forecaster’s job is to define the cone in a manner that helps the decision maker exercise strategic judgment. Many factors go into delineating the cone of uncertainty, but the most important is defining its breadth, which is a measure of overall uncertainty.

“Drawing a cone too narrowly is worse than drawing it too broadly. A broad cone leaves you with a lot of uncertainty, but uncertainty is a friend, for its bedfellow is opportunity—as any good underwriter knows. The cone can be narrowed in subsequent refinements. Indeed, good forecasting is always an iterative process. Defining the cone broadly at the start maximizes your capacity to generate hypotheses about outcomes and eventual responses.”

Value-Based Management software tools like SmartOrg’s Portfolio Navigator™ focus decision-makers’ attention on dealing with uncertainty and monitoring its impact throughout the decision-making process.