What is the Cone of Uncertainty?
In project management, the term “Cone of Uncertainty” describes the transition from high levels of uncertainty at the beginning resulting from the lack of knowledge to the point where there are no unknowns and therefore a state approaching 100% certainty.
In software development the term is used in highly volatile environments where both technical and business requirements are changing rapidly. In some industries the environment changes so infrequently that, for the duration of any single project, the environment can be considered static. In these cases, the Cone of Uncertainty rapidly reaches 100% certainty.
In volatile environments the Cone of Uncertainty is narrowed by research and by judicious de-risking decisions often labelled Change Control.
Why is the concept useful in Business?
Clearly there are technical applications, the US Hurricane Centre, for example, uses the science behind the Cone of Uncertainty to forecast the likelihood and path of hurricanes. Admittedly this is the exact opposite of the way it is used in software development but the principle is the same.
I find it useful when reviewing major account strategies and sales pipeline. The less we know about a client, their buying behaviour, their propensity to spend, the make-up of their buying committee, their budget, the impact of “doing nothing”, etc., etc., the higher the levels of uncertainty.
Realising and being honest about the level of uncertainty allows you to build strategies that drive out the uncertainty and move closer and closer to a position of full certainty. One major benefit of this strategy is that often it becomes apparent that the client is not going to buy at a much earlier stage. Brave sales execs will no bid and walk away saving themselves time to work on deals with a better likelihood of success and saving the firm significant presales costs.
I also find the concept useful when considering making new investments. It is very easy to get emotionally involved in a new idea or new concept at an early stage. You are being sold to. The seller is full of confidence. It is easy to be carried along with the strength of the message. However, understanding the risks and realising what you don’t know allows you to establish an understanding of where you are in the Cone of Uncertainty. Diligent questioning, research and testing will move you through the cone towards certainty and hence an informed decision.
Clearly, reaching 100% certainty is utopia and not often attained. However, making informed decisions are clearly better than managing on a wing and a prayer.
Finally, closest to my heart, are the people we employ and the culture they help shape. Knowing the vision for the firm and the behaviours that reinforce the culture and values we have so carefully built allows us to rapidly drive through the cone of uncertainty when interviewing, background and reference checking potential employees so that we have a much higher level of certainty when we make job offers.
Do you use the Cone of Uncertainty principle when making business decisions? If so, where do you find it most useful?
Do you think this a waste of time and prefer to fly by the seat of your pants? If so, does it work for you or do you find yourself making the wrong decisions often?
Do you thing that an obsession with getting it right and de-risking decisions slows a company down and makes them less agile?
I am eager to hear your thoughts.