Uncertainty Analysis

“System Capability Audits” – the necessary next step in management auditing

Compliance auditing is very familiar to most of us.  Useful as far as it goes, the value of compliance auditing is limited.  In a rapidly changing world fixed rules are often out of date and compliance to rules does not mean that an organisation is performing well or that it will perform well in future.

Many of us are also familiar with performance auditing, which focuses on whether agreed outcomes are being met and if not, why not.  Performance audits require skill, experience and high situational awareness but they too have limits to their value.  Not achieving targets may be due more to external forces than to poor management and the achievement of specific targets can be at the cost of performance in other areas.  In a changing world, the ability to achieve targets set 12 months earlier is of limited value when the targets themselves should be moving.

System Capability Audits take the next step, to test the capability of whole business systems in their current and emerging context.  Although existing rules, standards and performance targets are still relevant, systems capability audits go much further by exploring how the dynamics within an organisation enable it to maximise (or otherwise) achievement of its purpose.

To do this System Capability Audits use a process of open inquiry and systemic analysis to discover what happens and why, and how those dynamics contribute to (or detract from) the possible delivery of the purpose.   This is true systems thinking work from first principles.  It can be scary and difficult and because it reveals underlying root causes (cans of worms) it can be a thankless task.

Nonetheless, System Capability Auditing is necessarily the way of the future.  In a world of uncertainty and change, it is the only effective way to validate governance systems and to predict future performance.  It is a powerful tool for those leaders willing to grasp the nettle and take the risk.

Analysis of uncertainty – powerful yet seldom used

All too often, leaders dealing with uncertainty spend some time understanding the problem context and then use their experience and intuition to decide what to do in response.   This may be okay in familiar or simple situations – provided of course that you want to repeat you past experiences.

The trouble is, intuition and experience are inside your current paradigms, thinking and behaviours.  So if you don’t want to repeat mistakes or if you simply want to lift performance to a new level it is essential to do something more.   Something that might cause you to understand more than you did and to make decisions you would not previously have entertained.

One way to challenge and to expand your paradigms is to use analysis.  When problem data is critically examined and is subject to analysis you may be surprised, even shocked and confounded, by the results.  This is because effective analytical methods are independent of your personal assumptions – and can draw conclusions that are in your blind spots.

There are powerful, well understood ways of analysing most problems involving uncertainty – whether that uncertainty creates risks, opportunities or both to what you are trying to do.  For example, future project cost estimates can often be made much more robust and reliable using techniques such as Monte Carlo simulation.  Less well understood is that new qualitative techniques such as Systemic Risk Analysis can provide powerful analytical insights into how and why to work on unmeasurable factors that drive performance – such as culture, business systems and strategies.

Are you using intuition and experience to make decisions when analysis could enrich and change your thinking?  Investing in analysis could be the catalyst that makes the difference.