How Managers Can Bound Uncertainty

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Heraclitus wrote, "The only constant in life is change." For some change is existing, full of opportunity. For others, change means risk and the potential for loss. As a manager it’s important that you manage this risk for your employees. Since you can’t eliminate risk completely, what you can do is bound it.

The higher up you are, the further you can see. That generally holds for the corporate ladder, as well. As a manager, you typically have more information than the team you manage. Even if you all got the exact same announcement about upcoming changes at the same time, your prior experiences, things you learned from peers, or in emails or meetings at your level, which your subordinates don’t have access to, gives you some better insight, even if only marginally.

Second, it’s important to consider loss aversion. This experimentally proven model from behavioral economics says that the pain someone feels from losing $100 is greater than the happiness from gaining $100. That means even seeming equally balanced risk (equal upside and downside) is perceived as more negative. So, when employees hear “change” and have little or no context to know how good or how bad, the two outcomes might seem equal in size, even if only because both are big unknowns. Unfortunately, the downside risk will be perceived as relatively worse.

As a manager, or even a CEO, you can’t know all the possible outcomes. Macroeconomic changes, competitors, changes in the market, and other events can impact even the best laid plans. Still, many of these outcomes are tail risk—or relatively improbable events. The best you can do is focus on the likely range of possibilities.

This is key. What seems most likely may seem obvious from your purview, higher up the ladder, but it is often not as visible to those below. Your experience alone may give you insights. Providing guidance is key. You may not be able to describe every outcome, but you can define the range, or limits of the outcomes.

For example, suppose the company announces layoffs. If you can say to your team, it will be no more than roughly 10% that puts an upper limit on it. It’s still not good, but that’s better than saying it might be 50%. If there’s a talk of a merger people may be worried about being redundant. If you can say, “yes we’re merging, but it will be at least nine months before we would merge with anyone, and the process will take at least six months to execute” employees will know they don’t need to run for the exits now but will have a year to see how things play out. If you can say more, like it would be a company in a new market you’re looking at, that could further assuage fears that your current team is no longer needed.

Again, what may be obvious to you may not be to others. As noted above this can come from extra information you have. It could also stem from simply having greater experience. Your team may not know as much about M&A or fundraising or layoffs as you do, simply because they haven’t been through it as often, if at all. Likewise, they may not understand what’s involved. Plenty of people at a startup know what it means to raise a round of funding, but they may not understand how much effort goes into it, the overall timeline, implications for share dilution, etc. I’ve been through two market crashes and was old enough to have seen a recession prior to that; younger workers may not have the same depth of experiences as you and may not know there’s a light at the end of every dark tunnel.

You may not be able to share all the details, but there’s probably some information delta which is sharable. By giving more visibility in this way you can bound the range of outcomes, particularly for downside risk which is what leads to fear and employees quitting on your, or simply having unnecessary anxiety. The goal isn’t to remove all risk, but to help put a range on it so people can go on with their careers without undue fear.