Traditional business analysis exposes us to unanticipated risk. You need to incorporate uncertainty in business analysis to manage risk in important business decisions.

1. The Valuable Paradox of Uncertainty
Why You Need to Include Uncertainty to Manage Risk
in Important Business Decisions
Robert D. Brown III
678-947-5997
rdbrown@incitedecisiontech.com

2. Traditional business analysis exposes us to unanticipated risk
Single Single
Calculation
Point Point
Engine!
Assumptions Results
 We are trained to provide the “right” answer, often
based on unrecognized biases, leading to confidence in
false precision Sensitivity Analysis
 We provide arbitrary assumptions around a predicted
$ NPV
+Y%
“answer” or forecast value for a base case or desired
case -Y%
 Our sensitivity analysis fails to capture full range of
-X1% +X2%
effects on important metrics (i.e., value)
 We overstate, understate or completely write off the
effects of uncertainties or our exposure to risks Best
Assumptions
 Consequently, we fail to plan for unforeseen risks and
benefits
Incite! Decision Technologies, LLC Copyright 2009 - 2011 2

3. Uncertainty analysis helps us avoid those blind spots
We observe
We recognize
results as
assumption as
distributions
uncertainties
Probability
Simulation
Engine!
$0 $ NPV
 We explicitly explore factors that can create extreme outcomes for key variables
 We translate these factors into the language of probability to avoid ambiguous meanings
about their range and prevalence
 This gives us the power to understand what can go wrong, what the upside may be, and
the likelihood for each
 By exploring how much tolerance we have for failure we can develop rational risk
mitigation plans
 Conversely, by exploring what can go right, we can develop creative competitive
strategies
Incite! Decision Technologies, LLC Copyright 2009 - 2011 3

4. Uncertainty analysis reveals which uncertainties need our
most attention for risk management
NPV, $million
$0 $80
Price of commodity product
These
assumptions User adoption
are critical Regulatory approval
value drivers
Market size
We don’t need to worry
about every uncertainty
Minor – just those that matter!
value
drivers
Incite! Decision Technologies, LLC Copyright 2009 - 2011 4

5. When we compare multiple alternatives, uncertainty
analysis shows where we need to…
NPV ($ millions)
0 100 200 300 400 500 600 700 800  Gather more
These information to
Pricing
assumptions avoid regret by
are critical Regulatory Approval choosing the
value “best” strategy
Market Share
drivers over ones that
Market Size could overlap in
value
Market Growth
SG&A  Explore the effects
Minor
of specific value
value Acquisition Cost
drivers
drivers to build
COGS Device hybrid strategies
that maximize
R&D Cost
value and
COGS Product minimize risk
Current License Acquisition
Strategy Strategy Strategy
Incite! Decision Technologies, LLC Copyright 2009 - 2011 5

6. By not explicitly considering uncertainty in planning
 We expose ourselves to unforeseen risks that
could have been anticipated
 We fail to look for ways to capture the full
potential value available to us
 We waste time and resources controlling for
outcomes that don’t really matter
 We fail to adopt the mature attitude of
considering perspectives and outcomes beyond
our biases
Incite! Decision Technologies, LLC Copyright 2009 - 2011 6