risk vs uncertainty

Risks are commonly assumed to be the same as uncertainty in the area of risk management. Although there is a big difference between risk and uncertainty, many professionals often think that they are the same.

Although this concept is not too important from a PMP or PMI-RMP exam point of view, you must understand the difference to avoid mixing them up.

Therefore, I’m writing this blog post to explain it and I hope after reading it, you won’t have any problems distinguishing between risk and uncertainty.

Risk

A risk is an unplanned event that may affect one or some of your project objectives if it occurs. The risk is positive if it affects your project positively, and it is negative if it affects the project negatively.

There are separate risk response strategies for negatives and positives.

The objective of a negative risk response strategy is to minimize their impact or probability, while the objective of a positive risk response strategy is to maximize the chance or impact.

You might also hear two more risk terms: known and unknown. Known risks are identified during the identify risks process and unknown risks are those you couldn’t identify.

A contingency plan is made for known risks, and you will use the contingency reserve to manage them. On the other hand, unknown risks are managed through a workaround using the management reserve.

Uncertainty

Uncertainty is a lack of complete certainty. In uncertainty, the outcome of any event is entirely unknown, and it cannot be measured or guessed; you don’t have any background information on the event.

Uncertainty is not an unknown risk.

In uncertainty, you completely lack the background information of an event, even though it has been identified. In the case of an unknown risk, although you have the background information, you missed it during the identify risks process.

A Real-World Example of Risk and Uncertainty

Assume two famous teams consist of renowned players, and they are going to play a football match the next day.

Can you tell me exactly which team is going to win?

No, you can’t; however, you can make an educated guess by reviewing and analyzing the past performances of each player, the team, and the results of matches they played against each other.

Then you can come up with some numbers, like there is a 30% chance of Team A or Team B winning, or there is a 70% possibility of Team A or Team B losing the match.

Now, let us put the same football match in a different scenario.

Let us say again that two teams are going to play a game, and no players are selected for either team.

In this situation, if somebody asked you which team is going to win, what would your response be?

You will be clueless because you don’t know which team consists of which players, and you have no idea how the teams will perform.

Here, you don’t have any information on past performance, and cannot predict the outcome of the event, even though the rules and the stadium are the same.

This situation is called uncertainty.

Differences Between Risk and Uncertainty

The following are a few differences between risk and uncertainty:

  • In risk you can predict the possibility of a future outcome, while in uncertainty you cannot.
  • Risks can be managed while uncertainty is uncontrollable.
  • Risks can be measured and quantified while uncertainty cannot.
  • You can assign a probability to risks events, while with uncertainty, you can’t.

Conclusion

Risk and uncertainty are different terms, but people tend to confuse them. Managing risks is easier because you can identify them and develop a response plan based on your experience. However, managing uncertainty is very difficult, as previous information is not available, too many parameters are involved, and you cannot predict the outcome.

However, to complete your project successfully, you must be very cautious, proactive, and open-minded to manage risks and uncertainty.

How do you manage risks and uncertainties in your projects? Please share your thoughts in the comments section.

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Speak Your Mind

    • If you can not manage risk on your own, you insure it. If you can manage the risk, you will develop a risk response plan.

  • Hi. Ibhave been reading on these two concepts but things are not so clear. With your explanation it tends to be a little bit clear but I would like you to give a practical example in agriculture to make the différenciation between the two concepts.

    • Hello Adikath, in uncertainty you lack the background info. I believe example given in this post is enough for a basic understanding,

  • Broadly agree with what you said. In the football example, besides your maths being wrong 40+70 = 110 which isn’t possible. You go to say if you didn’t know the teams, you couldn’t predict the result.

    But with this example you can predict the possible outcomes, team a win, team b wins or it’s a draw. As with all uncertainty you can bound it. I can’t think of anything you can’t bound. Therefore your conclusion you can’t know is wrong.

    As other have said once you have bound something you can model it can predict a most likely outcome.

  • The cone of uncertainty reduces as the project progress, right? PESTLE factor analysis is used to identify possible uncertainties. Does PMI PMBOK recommend to use pestle for managing uncertainty? I think not. Does PMI standards for programme or portfolio management recommend using pestle analysis for managing uncertainty or overall project risk?

  • Hi guys, do you agree that uncertainty management involves doing external scanning in terms of PESTLE factor analysis or internal analysis of SWOT?

  • Great, thanks for differentiating risks and uncertainty, I was actually searching for the relationship and difference between identifiable risks and unmeasurable uncertainty,. It was satisfactory.
    Dan

  • Fahad i have an innocent question. if uncertainty is not measurable not predictable and can,t be minimized at the same time, then why even we keep studying it(uncertainty) and getting ourselves confused between these two rival

  • Fahad i have an innocent question. if uncertainty is not measurable not predictable and can,t be minimized at the same time, then why even we keep studying it(uncertainty) and getting ourselves confused between these two rivals.

  • Hello Fahad (PMP, PMI-RMP),

    I am really grateful to you for helping me out to understand the topics in simpler way.

    Thanks and Regards,
    Mehul

  • Mathematically
    Risk = an uncertain event if occurs can impact the outcome of event in a positive or negative direction
    So it has two parts
    Risk = Probability * impact
    Now under probability theory an event can occur in three ways
    1) It will happen ( a certain event) prob = 1, impact you can input based on your findings to find Risk
    2) It may occur ( a probable event, however small it could be, those who talk about unknown unknowns or uncertainties all fall here) the probability could be infinitesimal or we just ignore it as It’s not worth * impact = get the risk value .
    3) It will not happen ( improbable event, with zero probability) * impact = no risk associated.
    There is nothing that falls outside it. Those uncertainties even we may may not think or imagine will also fall under it but only worry about the major probable events that may impact our project.
    Your life has millions of variables all uncertain, even lightening striking us may have a probability, but we don’t really consider it Day to Day risk, but those who are not so lucky and it get struck , despite infinitesimal probability they loose.
    Every single event whether known and unknown has a probability of occurrence and it sums up to 1.
    Now you choose what your sample space is?

    • I had to discuss this issue with my guru.

      Uncertainty is managed by minimizing it by degrees.

      Uncertainty: Not having ANY idea of the probability of possible outcomes. The more we do to narrow the degree of uncertainty, the more we understand its probability and the likelihood of the relevant risk event impacting us!

      How? Manage it by research. What’s the history? How many times has it impacted us? How serious was the impact?

  • I’m sorry, I disagree with the basic definitions you are using. To begin with, uncertainty is an umbrella term to define any known or unknown event or series of events. It encompasses Allowances, Contingency and Risks. Allowances are “known-knowns” whose exact value is not known at the time but whose expenditure is certain to occur. Hence an amount is assigned to this particular cost, and later revisited when additional information becomes available. Contingencies are “known-unknowns,” within the defined project scope. It is a specific provision for unforeseeable elements of cost within the defined project scope, particularly important where previous experience relating estimates and actual costs has shown that unforeseeable events that increase costs are likely to occur (AACEI). Contingency event estimates are made based on experienced judgment from subject matter experts (SMEs)on that estimate. Risks are the “unknown-unknowns” whose probability of occurrence and cost impact is not certain. But even the unknown-unknowns can be estimated by SMEs, based on their experience using Monte Carlo computer models to estimate the probability of occurrence and an estimated value of the impact. The Risk Register is where the risks (or opportunities) are listed and discussed in a Risk Workshop of SMEs, and both qualitative and quantitative descriptions are assigned to each risk element. The risk elements are prioritized, and the SMEs then look for mitigation measures to reduce or eliminate each risk. The residual post-mitigation risks are then used as the basis for the Monte Carlo computer analysis. The analysis will return the calculation that there is a (say) 80% probability that the total cost of the risks will be less than $ X thousand, or other percentages and impact cost depending on the risk estimator’s (or management’s) risk appetite. This amount should be added to the Project Base Cost (which would include Allowances) and the Contingency, defined as the Project Baseline Cost, to arrive at the project funded (or budgeted) cost.

    For a more complete treatise on Uncertainty which I co-authored, please read “Addressing Uncertainties in Cost Estimates for Decommissioning Nuclear Facilities,” © OECD 2017, NEA No. 7344.

  • Good attempt Fahad.

    Firstly, risk and uncertainty are understood in various ways depending on which sector you work in.

    How would you comment on ISO 31000 definition of risk that goes like” risk is the effect of uncertainty”.

    And then COSO puts it differently, may be you can google it up.

    Appreciate your comments.

    Regards

  • Will you please help me answer this? In ISO 9000:2015, ”Risk is an effect of uncertainty”, my question is, why it was defined that way?

  • Err unless you guys have decided project management should have a different definition of uncertainty than other fields of human endeavour like Science, engineering and medicine I suggest reading some of the many books on the topic. Uncertainty certainly can be measured and is used in serious fields to assign a probability that an outcome will happen within a defined range.

    Google uncertainty in science or uncertainty budget

    I fear you may have got some of your info from the field of economics (which can make astrology and black magic look bad) 😉

    • Can you explain it little further:

      Uncertainty certainly can be measured and is used in serious fields to assign a probability that an outcome will happen within a defined range.

  • Thanks for all your imput, the scales have been taken off my eyes, now I understand the difference.

  • Thanks for sharing the ideas about risk and uncertainty. What Angel says is not different from your right and simple idea to make it clear. The difference is only in the statement but you both have presented the same difference eithet it is quntifiable or not which clears the fundamental difference between them. Thanks for making me more clear on the subject matter.

    • In uncertainty you completely lack the historical and pas information. The construction of a house or painting a wall does not fall in this category. Here you can estimate the cost will a good accuracy. Most of the times these contracts are given under fixed price or cost reimbursable.

    • Risk can be said to be an uncertain event which chances of occurrence can be predicted and measured whereas, uncertainty can also be said to be an uncertain event which chances of occurrence cannot be predicted and measured. The difference is that the probability of a risk event happening can be predicted and measured while the probability of uncertainty cannot be predicted and measured.

  • FAHAD
    Can we say contingency plan dedicated for negative risk while management reserve dedicated for uncertain issues as we can’t guess their impacts?

    • This is a tricky question.

      As per my understanding, since the uncertainty is a identified risk, you can passively accept the uncertainty and keep some contingency reserve based on educated guess.

      I also request other visitors to share their thoughts on it.

  • Risk: We don’t know what is going to happen next, but we do know what the distribution looks like.

    Uncertainty: We don’t know what is going to happen next, and we do not know what the possible distribution looks like.

  • In my view uncertainty is imperfect knowledge. Throughout a project we strive to improve definition (reduce uncertainty) to improve chances of success (reduce risk of failure.) There are key uncertainties in projects that you must understand well before making strategic decisions.
    Cost estimating is a good example to illustrate uncertainty.It is very difficult (if not impossible) to estimate the final cost of a complex project to the last cent. Do you remember what happened the last your did a remodelling job at your house? If you did not understand the uncertainty well, you may end up regretting the decision of remodeling the kitchen yourself. That is why you do the front end work: develop the scope, prepare the plans, get quotes, etc. it is to reduce uncertainty.
    Uncertainty analysis helps us understand the expected ranges of outcomes & test against project objectives to make informed decisions. For example, we can test whether a project is resilient to various cost grow scenarios and make an informed decision to sanction the project. We can then characterise the risk or opportunity.

    • Sorry to add confusion but I agree fundamentally with Angel. .

      Lets suppose we have to paint a wall in our kitchen.

      Initially (at the planning stage) we are uncertain of the amount of paint to be used but can estimate it as a random number
      We are uncertain of the time it will take to paint the wall .
      There is a risk that the plaster will fall apart in preparation.
      There is a risk that the paint will bubble after it has been applied.

      Uncertainty is managed by research and by putting slack into a project
      Negative Risk is managed by process improvement and recovery strategies.

      Incidently you can have uncertainty about the likelihood of a risk event occuring 🙂

  • Hi Fahad,

    Can you please help in providing details/difference of Perform Qualitative and Quantitative risk analysis?

    Thanks,
    Naveen

    • In Qualitative risk analysis, you prioritize the risks by multiplying their probabilities and impact. And in Quantitative risk analysis, you numerically analyse the risks. Here, you find the cost of each risk (if it occurs individually) and then you add it up to get the overall effect on the project.

  • Both risk and uncertainty are inevitable in today’s scenario of Project Management. one has to driven his path midway.

  • The football analogy is a good one and encapsulates today’s modern management attitude to uncertainty perfectly where uncertainty is just flagged as another risk, an unmeasured one, and thus can be ignored, if its recognised at all.

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