Risk in a VUCA Environment

From the A1 to C3, the newspaper is drowning in chaos, disturbances and the growing call for significant change in our world. For those who never had the pleasure of reading a full newspaper over morning coffee, that’s the meat, before the comics and entertainment sections, though they might just be a better, more sane bet these days.

Volatility, uncertainty, complexity and ambiguity (VUCA) has grown in popularity, resonating with many who are looking for an anchor term to describe today’s business environment. While it likely extends to many others arenas, it is most valuable in understanding the challenges small and medium businesses (SMB) encounter in daily operations.

Enter risk, the calculation of a future event, its probability and severity, on your current or future operations. Decisions, strategic and important, rely on the ability of entrepreneurs to understand the potential risk in the markets, find reasonable clarity in the VUCA reality, while relying on the elements of PCSC to stop gap any significant issues. Risk tolerance is personal, different in each of us and not equal across all decisions. Most entrepreneurs prefer clarity, though some excel in VUCA situations, where bold moves, aggressive decisions may lead to exceptional payoffs. Some embrace game theory and some are just unrestrained.

Risk is understood to be a perception, as previous iterations predict the future, we gain a reasonable level of confidence as to the future outcome. Never certain, but with time, education, social capital and great advisors, VUCA becomes less a problem set and more an advantage. PCSC is reasonably easy to navigate, and a preferred environment for those with large capital-intensive projects that have longer time horizons. Hence the heavy interventionist governance present in certain sectors of the economy, where a company intends to invest billions, they have a reasonable expectation of predictability. But what if PCSC becomes less available and the world moves more towards VUCA?