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RiskVersusUncertainty

I saw this quoted somwhere: "I have met many project managers that think they are dealing with risk when they are really dealing with uncertainty. The techniques are quite different. "

What are thoughts on this topic?

--KeithRay

I'd like to hear more about what the author had in mind. I'm guessing the author means that many project managers don't actively generate tasks to explore uncertainties, and thus get locked in to a pattern of dealing with yesteday's risks. But that's just a guess. --DaveSmith

Still another speculation:

• Uncertainty is about the likelihood of outcomes.
• Risk includes consequences.

The one in six chance of a standard die coming up "one" is of little but academic interest, unless you've got the mortgage riding on this toss of the die. The fomer is uncertainty. The latter is risk. From a management perspective, especially project management, uncertainty is a fact of life, while risk is one of the big things you are paid to manage.

-- JimBullock 2005.05.30 (It's all in fun until you have some skin in the game.)

I wonder what this person meant by these terms. Risk and uncertainty are related in my eyes.

The fist step in analyzing a risk is determining the uncertainty. For instance, the uncertainty of the estimate for the completion date of a task or product is specified by the variability about when it will be completed.

The PM who is certain provides a point estimate, for instance July 16. If the PM is uncertain, she shows the estimated delivery as a range, such as July 13 to August 25. That range is a probability distribution.

I find it amusing to observe how suppliers provide estimates when they are uncertain. Their announcement says things like "we anticipate the product shipping in the third quarter." That's three months of uncertainty. The estimate is even more variable if the announcement specifies "ship" rather than "general availability." The next annoucement will say that general availability will be in the fourth quarter, which gives another three months for development. After watching these announcements for years, I conclude that the more the uncertainty, the more the weasel words.

A supplier, and that's what a PM is supposed to be, can manage risks and customer expectation if they face and quantify the uncertainty.

I thought that by writing about the topic that I might discover what the person meant by the distinction between uncertainty and risk. I didn't. I need more information.

SteveSmith 2005.05.31

Part of the confusion might be that there are three quantities running about, vs. two. Taking uncertainty and risk as I used them above, the third is perhaps called "exposure" and is based on a relation between risk and uncertainty. Sometimes "exposure" is used for what I called "risk" above, and "risk" for "exposure." The point is to pick some definition to use.

Steve wrote: "I need more information."

Information reduces uncertainty. It's relevant only if you have some skin in the game. And actually, you "want" more information vs. need. The other big trick in thinking about risk & uncertainty is that they are only interesting if you are being intentional, and likely instrumental. "Intentional" meaning preferring one outcome to another. "Instrumental" meaning doing one thing in aid of the payoff from another, dependent or otherwise related thing.

In a world where you don't much care what happens, "uncertainty" is of little concern.

- JimBullock (Come on. Take a chance.) 2005.05.31

http://www.newenergyassoc.com/documents/Enterprise_Risk_Management_EPRM030821.pdf

See under "Roadblock 1". Does this match, Keith?

MikeMelendez 2005.06.01