March 28, 2023 Planning through uncertainty
Donald Rumsfeld’s 2002 comments may have brought the idea of ‘known knowns,’ ‘known unknowns’, and ‘unknown unknowns’ to a new audience but in truth these concepts had been part of critical thinking since the 1950s. And they are still valid today as a way of analysing and explaining potential risk pathways.
Let’s face it, whether we are looking at marketplace, geopolitical, ESG, or other risk factors, it’s a rare organisation that doesn’t have to factor in some form of ‘unknown’ risk into the planning model. Identifying the nature of those potential risks is one of the key skills of any director, as is being able to explain what steps are being taken to modify or overcome those risks, in a way which is clear to potential investors and stakeholders.
That challenge of dealing with known unknowns runs through the latest three year plan from the Financial Reporting Council (FRC). The FRC knows that it is due to be replaced by the new Audit, Reporting and Governance Authority (ARGA). However, a holdup in the legislative process has resulted in the transition timeline slipping from the originally planned transition date of 1 April 2023. In developing their new three year plan, the FRC pushed the planning assumption back by a year. However, in their March 2023 planning announcement, the FRC acknowledges that changes to the Parliamentary timetable have cast some doubt over the 2024 transition date and that further delays may occur.
With the ‘known’ challenge of a transition to a new authority being impacted by an ‘unknown’ implementation date, the task facing the FRC is to continue to plan for the transition whilst simultaneously maintaining a high level of oversight. In pursuing this pathway, the FRC has been able to bring some ARGA projects to fruition in advance of the transition. These include PIE auditor registration and audit committee oversight. Other projects will have to wait for legislative approval.
Commenting on the new three year plan FRC CEO, Sir Jon Thompson, said: “We are actively working towards the goals of the reform program, and … concentrating on the changes we can bring about through our current powers and remit.”
This combination of business as usual and forward planning is something which all organisational leaders should be familiar with. Whether it is planning towards a defined goal or contingency planning in the light of perceived external factors, the more that the ‘unknowns’ are brought into consideration, the better that organisations are able to deliver strong outcomes.