Communication is the lifeblood of decision making, the bridge that connects us to one another and to our shared goals. Corporate decision making is a complex dance of encoding and decoding, speaking and listening, sending and receiving, arguments and counterarguments. But what happens when the dance is out of sync? When the speaker communicates risks with a 90% confidence interval (p95), but the listener hears the same risks with a 100% confidence expectation (p100)? This mismatch, this risk communication gap, can lead to a host of problems, from poor quality decision making to ignoring risk information to stalling innovation. Risk managers need to take active steps to bridge the gap.
The speaker: operating at 90%CI
When we speak, we often operate at the 90% confidence level. More like 70% for some people. This statistical term refers to the range within which we can be 90% confident that what we saying is correct. In communication, this means we typically convey the message that applies to the majority, excluding the extremes, the outliers, and exceptions to the rule. We fully acknowledge they exist, we just don’t explicitly state that because it is implied.
Why do we do this? For one, it’s efficient. If we had to account for every possible exception or outlier in our story or methodology, our conversations would be endless and exhausting. Secondly, it’s practical. Most of the time, the ‘typical’ scenarios, the body of the distribution, are what’s most relevant to our making a decision.
However, this approach has its drawbacks. By focusing on the p95, we might overlook or dismiss the outliers, the tail of the distribution, that could offer valuable insights into the nature of the risk, miss important mitigation strategies or innovative ideas. We might also inadvertently create a communication gap with our listeners who operate at a different confidence interval.
The listener: tuned into 100% CI
On the flip side, when we listen, we often tune into the 100% confidence interval. We consider the entire range of possibilities, including the extremes and outliers. This is because our brains are wired to pay attention to anomalies. They stand out, they’re interesting, and they often carry a higher emotional weight.
However, this can lead to a mismatch in communication. When the speaker is operating at p95 and the listener at p100, the message sent is not the message received. The listener might focus on the exceptions that the speaker didn’t explicitly state, prematurely dismissing the approach that works 90% of the time. Talk of throwing baby with bath water.
The consequences of the gap
This communication gap can have serious consequences. Many good ideas might never be communicated properly and end up being ignored. I once literally saved $5.7 million due to quant risk analysis only for the model to be dismissed because it didn’t address one specific significant tail risk. The model was never designed for the tail risks and a separate approach was required for the low probability and catastrophic consequences, which was clearly stated in model description. The good news, I already saved millions by the time this genius advice was shared with me.
Moreover, this gap can lead to a breakdown in relationships and trust. If people feel like they’re not being heard or understood, they might become frustrated or disengaged. Not me, I have thick skin.
Bridging the gap: practical steps
So, how can we bridge this communication gap? Here are some practical steps:
- Awareness: The first step is to recognize that this gap exists. Understand that when you’re speaking, you might be operating at p95, while your listeners might be tuned into p100. Clearly state the limitations and boundaries of the analysis undertaken up front.
- Clarify your confidence interval: When communicating, especially about important risky decisions, clarify the confidence interval you’re operating within. Are you talking about what’s true for the majority of cases, or are you considering all possible scenarios? Sometimes we operate at p70 or p80 highlighting how little information we have at the moment.
- Invite outliers into the conversation: Don’t dismiss outliers or extremes. They might not be the norm, but they can offer valuable insights. Invite them into the conversation and give them a chance to be heard. Document catastrophic scenarios separately.
- Active listening: Practice active listening. This means not just hearing the words, but understanding the message behind them. Ask questions, seek clarification, and try to understand the speaker’s perspective.
- Feedback: Encourage feedback. This can help ensure that your message is being understood as intended. It also gives you a chance to adjust your communication style if needed.
In conclusion, while the p95-p100 communication gap can pose challenges, it’s not insurmountable. By being aware of this gap and taking steps to bridge it, we can improve our communication, foster better understanding, and ensure that valuable ideas don’t get lost in translation. After all, in the dance of communication, it’s not just about speaking or listening, but about understanding and being understood.