How Leaders Make Better Decisions Under Uncertainty 1

Leadership Judgement Series – Part Six

A leadership team considering entry into a new market can do almost everything right, but there will always be uncertainty.

It can research demand, speak to existing and prospective customers, assess competitors, model different financial scenarios and test whether the organisation has the capability to deliver. Finance can challenge the assumptions, operational leaders can assess the practical implications and external advisers can provide an independent view.

At the end of that work, uncertainty will still remain.

The market may develop more slowly than expected. A competitor may respond differently. Customer priorities may shift. Implementation may cost more or take longer than planned. Economic conditions may change before the investment produces a return.

None of those uncertainties means the business case was inadequate or that leadership failed to do enough research.

It means the organisation has reached the point at which analysis has reduced uncertainty as far as reasonably possible and judgement has to take over.

A well-researched decision can still be uncertain. That does not make it a poor decision; it makes risk part of the decision.

Uncertainty Is Not an Excuse for Poor Preparation

There is an important distinction between making a decision under uncertainty and making an uninformed decision.

Uncertainty should never become justification for skipping due diligence, relying on instinct when evidence is available or avoiding difficult conversations with customers, employees and other stakeholders.

Good leadership teams should reduce the uncertainty they reasonably can before committing significant money, people or strategic attention.

They research the market, test assumptions, interrogate the business case and examine credible alternatives. They seek customer and market evidence, challenge the financial logic and consider whether the organisation genuinely has the capability to execute what is being proposed.

Only after doing that can they identify what remains genuinely uncertain.

McKinsey’s longstanding work on strategy under uncertainty describes this as residual uncertainty: what remains after the best available analysis has been undertaken. Its central point is important because many unknowns that initially appear uncertain are actually knowable if leadership conducts the right research and analysis first.

Leadership judgement under uncertainty therefore does not begin by abandoning evidence.

It begins when further evidence no longer removes the uncertainty that matters.

Important Decisions Rarely Offer Risk Versus No Risk

When leadership teams discuss uncertainty, attention naturally gravitates towards the risks associated with taking action.

What happens if:

• The investment fails?
• The acquisition does not deliver the expected synergies?
• Customers reject the new proposition?

These are legitimate questions, particularly where the financial exposure is significant.

The problem comes when the alternative is implicitly treated as safer simply because it involves less visible change.

Choosing not to invest carries risk. Delaying an acquisition carries risk. Continuing with the existing proposition carries risk. Waiting another year before entering a changing market carries risk.

The decision is therefore rarely between taking a risk and avoiding one.

It is usually a choice between different combinations of risk.

A new investment may create downside risk if customer demand proves weaker than expected. Waiting may create opportunity risk if competitors establish themselves first. Moving quickly may increase execution risk, while delaying may increase timing risk as the market evolves. A major strategic commitment may also create longer-term risk by reducing the organisation’s ability to pursue other opportunities.

The leadership challenge is to understand those risks together rather than examining only the ones attached to change.

The 2026 edition of HM Treasury’s Orange Book makes this point unusually clearly for a risk-management publication. It argues that organisations cannot simply be risk-averse and successful, and that effective risk management requires a balanced consideration of opportunity and risk. It explicitly recognises that an organisation may choose to avoid risk, increase risk in pursuit of an opportunity or retain risk through an informed decision.

That is much closer to commercial leadership than the traditional idea of risk management as a process for making risk disappear.

Good judgement is about deciding which risks the organisation is prepared to carry in pursuit of an outcome that matters.

The Safest-Looking Decision Can Carry the Greatest Risk

This becomes particularly important when the status quo appears to be the safest option.

Imagine a business with a highly profitable legacy product. It knows the customers, understands the economics and has years of evidence showing that the product generates attractive margins. Alongside it sits an emerging model that better reflects how some customers appear likely to buy in future.

Investing significantly in the new model creates obvious uncertainty. Demand has not been fully proven, the capabilities required are different and the likely return is less predictable than continuing to invest in the established business.

Against that comparison, the existing product looks safer, but extend the decision horizon.

If customer behaviour is genuinely changing, continuing to place the majority of investment behind the established product exposes the organisation to a different set of risks. Competitors may gain an early advantage. Existing capabilities may become less relevant. The eventual transition could become more expensive because it starts later and under greater commercial pressure.

Neither option is risk-free; the difference is that one set of risks is easier to see.

Uncertainty is visible in the new option. Risk can remain hidden in the familiar one.

This is one reason leadership teams should explicitly examine the risks of acting, waiting and doing nothing.

Doing nothing is still a decision. It simply tends to arrive without a new business case attached to it.

Different Uncertainty Requires Different Responses

Not every uncertain decision should be treated in the same way.

Some uncertainties can be resolved through additional research. If a leadership team does not know the potential size of a market, customer willingness to pay or the economics of a proposed investment, there may be further work worth doing before deciding.

In other cases, several plausible futures exist and no amount of additional research can establish with confidence which one will occur. Scenario thinking may then be more useful than producing an increasingly precise forecast around a single expected outcome.

Where uncertainty is greater still, flexibility itself can become strategically valuable. Rather than attempting to predict one future perfectly, leadership can make a decision that remains viable across several credible outcomes.

McKinsey’s work distinguishes between different levels of residual uncertainty precisely because strategic responses should change according to how much of the future can reasonably be known.

The practical lesson is simpler:

The uncertainty should influence the shape of the decision.

• If the principal uncertainty can be researched, research it.
• If several realistic outcomes exist, test the decision against them.
• If the organisation cannot afford the downside, protect itself before proceeding.
• If uncertainty is substantial but the opportunity remains attractive, look for ways to preserve flexibility while learning.

The objective is not to build ever more elaborate analysis around an unknowable future. It is to make the commitment appropriate to what leadership genuinely knows.

Sometimes Better Judgement Changes the Size of the Bet

This is where apparently binary decisions can become more interesting.

Leadership discussions often become framed as, should we:

• Enter the market or not?
• Develop the product or not?
• Commit to the transformation or not?

Sometimes those genuinely are binary decisions, but often they are not.

A business considering a substantial new market opportunity might decide that the strategic case is strong but that several important assumptions remain uncertain. Rather than either walking away or committing the full investment immediately, it might enter through a smaller geographic area, a limited customer segment or a staged commercial proposition.

A technology investment might be structured so that further capital is released against clearly defined milestones. A commercial agreement can include break clauses or contingent commitments. An acquisition may require contractual protection against a specific exposure discovered during due diligence.

None of this means endlessly piloting opportunities until the market has moved on.

Speed itself can matter, and there are situations where scale is necessary to create an advantage.

The leadership judgement lies in understanding whether the uncertainty warrants changing the nature of the commitment.

Sometimes better judgement does not change the decision. It changes the size, timing or reversibility of the commitment.

The same strategic ambition can therefore produce very different risk profiles depending on how leadership chooses to pursue it.

A £5 million irreversible commitment and a staged investment that initially exposes £500,000 may ultimately be pursuing the same opportunity. They are not the same decision.

That is a far more useful way of thinking about uncertainty than simply asking whether leadership is sufficiently confident to proceed.

Risk Appetite Is a Leadership Decision

The phrase risk appetite can quickly make a commercial discussion sound like a compliance exercise.

Underneath the terminology sits a much more useful question:

What are we prepared to risk in pursuit of this opportunity?

Followed immediately by another:

What outcome could we not afford to absorb?

Those questions force leadership teams to consider both ambition and organisational viability.

A founder-led £20 million business may reasonably decide that losing £200,000 testing a potentially significant new market would be painful but manageable. The same organisation might conclude that committing £5 million before demand has been validated could threaten investment elsewhere, weaken cash reserves or create an exposure it cannot responsibly carry.

Another business with greater financial strength might reasonably make a different decision.

There is no universal correct level of risk.

The Orange Book places responsibility on boards to determine the nature and extent of the principal risks an organisation is willing to take in pursuit of its objectives, and to ensure that planning and decision-making reflect that risk appetite.

Commercially, the principle is straightforward.

Good judgement protects the organisation from risks it cannot survive while still allowing it to take the risks required to grow.

An organisation that refuses every uncertain opportunity may avoid some losses. It may also avoid growth, innovation and strategic renewal. Risk appetite should therefore establish boundaries for intelligent risk-taking rather than become an excuse for permanent caution.

A Good Decision Can Still Produce a Bad Outcome

There is another uncomfortable aspect of uncertainty.

Leadership teams can follow a sound process and still get a poor result.

Imagine a business entering a new market after conducting credible research, testing assumptions, speaking to customers, modelling several scenarios and deliberately limiting its initial exposure.

Six months later, an unexpected regulatory change fundamentally alters the market.

The investment fails.

That outcome does not automatically prove that the original decision was badly judged.

Equally, imagine another leadership team investing heavily on the basis of a weak business case, optimistic assumptions and very little customer evidence.

The market happens to boom and the investment generates an exceptional return.

Success does not necessarily mean the original decision was good.

This distinction matters because organisations naturally evaluate past decisions with knowledge of what happened afterwards.

Research into outcome bias has demonstrated that people tend to rate decisions more positively when the eventual outcome is favourable, even where the information available to the decision-maker beforehand was otherwise the same.

That creates a significant risk for organisational learning.

A badly judged gamble that succeeds can reinforce weak decision behaviour.

A carefully considered decision that encounters an unforeseeable event can cause leadership to abandon a fundamentally sound approach.

Good leadership teams therefore examine two things separately.

Was the decision good given what we reasonably knew at the time?

And:

What does the outcome now teach us?

That distinction does not remove accountability.

It improves it.

Because the objective is not simply to celebrate winners and condemn failures. It is to improve the quality of the decisions the organisation makes next.

A Practical Discipline for Decisions Under Uncertainty

Major decisions do not need another bureaucratic process simply because uncertainty exists.

They do benefit from making the remaining uncertainty and risk explicit.

The questions are diagnostic rather than exhaustive. Their purpose is to stop leadership teams doing two equally dangerous things: treating uncertainty as a reason to avoid making the decision, or treating conviction as a substitute for understanding the risk.

The final question is particularly important. Agreeing before the decision what evidence would justify changing course makes it easier to respond intelligently if reality develops differently afterwards.

Without that discipline, a decision that initially required courage can gradually become one that leadership feels compelled to defend. That is a different judgement problem, and one we will return to later in this series.

Better Leadership Judgement Does Not Remove Risk

Experienced leaders do not possess a special ability to predict uncertain futures, although the strongest improve the odds.

They gather the evidence that can reasonably be gathered, test assumptions and expose their thinking to credible challenge. In addition, they understand the risks of acting but recognise the risks associated with waiting and preserving the status quo.

They consider how much the organisation can afford to expose, whether the commitment can be staged or reversed and what future evidence should trigger a rethink. Then, at some point, they decide.

The 2026 Orange Book is clear that risk is inherent in pursuing organisational objectives and that risk management should support decision-making rather than become a separate process designed simply to eliminate uncertainty.

That distinction matters well beyond formal risk management.

Leadership judgement is not the ability to eliminate risk. It is the ability to understand which risks are worth taking, which need reducing and which the organisation cannot responsibly afford.

A well-made decision may still fail. An uncertain decision can still be the right one.

Sometimes the greatest risk facing an organisation is the decision that feels safest because nobody has considered what happens if the world around it changes.

Before the next major investment, strategic shift or commitment of organisational resources, there is therefore one question worth putting on the table:

Which risk are we choosing — not simply which risk are we trying to avoid?

Next in the Leadership Judgement Series

Evidence-Based Decisions: Why Good Leaders Change Course

Making a well-judged decision under uncertainty is only part of the leadership challenge.

The next test is recognising when new evidence changes the reality on which that decision was based — and having the judgement to change direction rather than defend a decision that once made perfect sense.