Do you know the difference between uncertainty and risk? Is there a difference at all, or is it about the same? When I am coaching project managers or business managers in their risk management activities, I often see identified risks that are not risks. If risk identification fails, subsequent steps in the risk management process will be doomed, and risk management cannot be effective. It is therefore essential to know the difference between uncertainty and risk, to be sure that risk identification identifies risks and not issues of something irrelevant that might impact your project or your business. Curious? Then read on!
Risks Comes from Uncertainty
Risk and uncertainty are often used in the same context. But is risk the same as uncertainty? The answer is no. An uncertainty is not yet a risk. All risks are uncertain, but not all uncertainties are risks. There are million uncertainties in the world, but almost all of them are not important for your project or your business. Here we have to differentiate.
The uncertainty that it might rain on Tuesday is irrelevant to your software project, but this uncertainty is very relevant to the garden party you are having on Tuesday.
David Hillson (The Risk Doctor) describes very concisely what a risk is:
Risk is Uncertainty that Matters
But how do you know what matters? Here is the definition:
A risk is the effect of uncertainty on certain objectives.
These can be business objectives or project objectives. A more complete definition of risk would therefore be “an uncertainty that if it occurs could affect one or more objectives”. Objectives are what matters!
This recognizes the fact that there are other uncertainties that are irrelevant in terms of objectives, and these should be excluded from the risk process. With no objectives, we have no risks. For the software project described above, rain has no significance, but it does matter for your garden party. Most uncertainties don’t matter for you—but some are relevant—those that threaten your objectives!
Linking risk with objectives makes it clear that every facet of life is risky. Everything we do aims to achieve objectives of some sort, including personal objectives, project objectives, and business objectives. Wherever objectives are defined, there will be risks to their successful achievement.
All risks are uncertain, but not all risk matter!
Definition of Risk and Uncertainty in the PMBOK®
The PMBOK® guide defines risk as an uncertain event or set of circumstances, and if it occurs has a positive or negative effect on achievement of objectives.
If we look at the APM body of knowledge definition of risk, it says that risk is an uncertain event or condition that if it occurs has an effect on one of one or more project objectives.
As you may have noticed, there are events and circumstances/conditions mentioned in these definitions. You may wonder: what means condition or set of circumstances? That’s obviously something separate from event. So clearly there are uncertain future events that if they occur could affect achievement of objectives, and that’s been our focus.
Both guidelines emphasize events and conditions/circumstances. What events are, that’s obvious. So what does it mean that it is a condition or set of circumstances? That’s obviously something separate from event. The PMBOK® 6th Edition has therefore introduced the distinction between Event and Non-Event Risk. Where events correspond to the event risk. This distinction may still be strange to you.
You will learn about Event and Non-Event Risk and Reducible and Irreducible Risks in the next article How to Successfully Manage Reducible and Irreducible Risk.
If there were no uncertainties, all work would be deterministic with no risk to success(Glen B. Alleman)
Here You Can Find Even More Knowledge
This was an overview about the difference between Uncertainty and Risk. What is your experience with Uncertainties and Risks in Projects? Do you agree with my statements in this article or do you have a different opinion? Share your experience with the readers with a commentary so that we all get to know another view. Thank you!
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