Every day, you make decisions based on information from different sources. It becomes increasingly essential in an unstable economy where the results may be contrary to those expected. You decision must be made based on the analysis and insight from the information that is reliable.
Daily decision making
When you take an initiative, you are supposed to control the risks related to your choice or your strategy and to have a clear idea of the information on which you are basing it. However, you rarely take into account the degree of interdependence that binds several parameters together, whereas this can have consequent effects after the decision is made.
The natural and intrinsic complexity of any system
Complexity is the main characteristic of any decision. This is essential information that goes beyond what conventional techniques are capable of providing. The measurement of this complexity makes it possible to check the relevance of your decision and the level of control of a system.
The complexity map identifies and indicates potential risks, reflects the structure of relationships between system variables and contains the indicators necessary to control this system.
How to get an idea of the risks associated with a decision
You must measure the distance that separates you from the level of absolute control to get a concrete idea of the risks associated with your decision. The further you stray from this overall control, the greater the potential risk. The more a decision is based on a small number of rules, the easier it is to manage.
Since your decision and the resulting actions are the consequence of the interactions between the different sources of information, the impact of the interactions that escapes you, reduces the reliability of the forecasts. This does not mean that your decision cannot be made, but that you must plan ahead and develop a contingency plan to deal with the unexpected.
Conversely, the closer you are to total control of a given system or situation, the less risk there is. If you are faced with a locked system, with all parameters more or less interconnected, this leaves very little room for manoeuvre.
How to measure the level of control possible over the GDP of a country
The examples of two Euro zone countries show the ability to manage their GDP. A fully controllable system has an indicator of 100%. There is an increase in the incidence of unmanageable external events. This has a serious impact on the governance and management of the main macroeconomic components of GDP.
Thus after the subprime crisis at the end of 2008 beginning of 2009, the incidence of unmanageable data increases. At the end of 2011 about 70% of the information is beyond the control of the two governments. This means that whatever type of economic measures are taken, they will require more effort and controls due to their unpredictability and unreliability.
However, the two countries show different development trends. In the first case, the predominance of controlled data is evident, while in the second case, the share of unmanageable external data associated with independent variables has a stronger impact which tends to increase in 2011. Indeed, six of the parameters of GDP are spiraling out of control. In this specific case, it is government expenditure on individuals, public facilities, acquisitions less disposals of securities, the external balance in goods and services, the gross surplus and the gross mixed income. We cannot therefore hope to intervene on these parameters to obtain the desired results.
A relevant management indicator
The measurement of the system provides a relevant indicator of its maneuverability, contributes to evaluate the precision, the effectiveness of the decisions applicable to the system and indicates the potential fragilities. In an unstable economy, this new performance indicator “KPI” provides crucial and unprecedented information.
All managers should take this indicator into account before any strategic decision, in order to anticipate potential risks.