I never thought that risk and uncertainty are different terms until I started my PMP exam preparation and was going through the risk management knowledge area.
In project management or more specifically in risk management, many professionals commonly use risk interchangeably with uncertainty.
Although there is a huge difference between risk and uncertainty, many people often ignore it and think they are the same.
Therefore, to make things clear, I’m writing this blog post. I hope after reading it you won’t have any problem distinguishing between risk and uncertainty.
As per the PMBOK Guide Fifth edition, “Risk is an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objective such as scope, schedule, cost, and quality.”
Put simply, risk is an unplanned event and if it occurs it may affect any of your project objectives.
If it affects your project positively then the risk is positive, and if it affects the project negatively it is a negative risk.
There are separate risk response strategies for negative and positive risks.
The objective of a negative risk response strategy is to minimize the impact of negative risks and the objective of a positive risk response strategy is to maximize the chance of positive risks happening.
You might also hear about two more risks terms: known risks and unknown risks.
Known risks are those risks which you have identified during the identify risks process and unknown risks are those risks which you couldn’t identify during the identify risks process.
A contingency plan is made for known risks, and you will use the contingency reserve to manage these risks.
Uncertainty is a lack of complete certainty. In uncertainty, the outcome of any event is completely unknown, and it cannot be measured or guessed. Here you don’t have any background information on the event.
Now you may argue that uncertainty is the same as unknown risks, however, uncertainty is not an unknown risk.
In uncertainty, you completely lack the background information of an event even though it is identified. In the case of an unknown risk, although you have the background information, you simply miss it during the identify risks process.
A Real-World Example on Risk and Uncertainty
Let us say there are two well-known football teams consisting 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?
Obviously not. However, you can make an educated guess by reviewing and analyzing the past performance of each individual player, the team, and the results of matches they played against each other.
Here you can come up with some number like there is a 40% chance of Team A or Team B winning, or there is a possibility of Team A or Team B losing the match by 70%.
Now, let us put the same football match in a different scenario.
Let us say again that two football teams are going to play a game, and no players have been selected for either team.
In this situation, if somebody asked you which team is going to win, what would you say?
You’re completely clueless. You don’t know which team consists of which players, and you have no idea how the teams will perform, etc.
In this situation, you don’t have any past information, are totally clueless, and hence cannot predict the outcome of the event, even though the match is the same, the rules are the same, and even the stadium is the same.
This situation is called uncertainty.
Difference 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 predict the possibility of a future outcome.
- Risk 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.
Risk and uncertainty are different terms, but most people think they are the same and ignore them. Managing risk is easier because you can identify risks and develop a response plan in advance based on your past 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 risk and uncertainty.
Here is where this blog post on risk and uncertainty ends. If you have something to share, you can do so through the comments section.