Uncertainty, Risk and Opportunities

Abstract

Risk customarily is defined as the product of the probability that an uncertain event will occur, and its consequence, that is, the potential effect of the event. Probability is commonly stated in percentages, so that 0.1 is a probability of 10 per cent that an event occurs and 1.0 indicates certainty of occurrence. Consequence may be expressed in monetary units, so risk, then, expresses expected value. It also may be expressed in other units, such as number of people killed or injured. Both risk and consequence may be precisely stated in quantitative terms by the ratio level, be graded at the ordinal level or possibly expressed qualitatively at the nominal level. For example, the comparison may be between two events, one of which not very likely but has major consequences, while the other is highly probable but has small consequences. This way of expressing risk comprises a simple, useful aid for comparing the significance of various events or decisions.

A project is an ad hoc organization that shall address a specific task, to be completed by a target date, meet a specified budget and have a stipulated quality. Attention is first and foremost focused on the parameters of time, cost and quality. Projects often involve extensive, costly, unique and/or high-risk operations. A project model often is chosen just to handle uncertainty and risk. Employing uncertainty and risk as principal steering parameters then is vital for improving the project result.

Probability is the language of uncertainty.

–Bruce F. Baird