Risk and uncertainty

Risk is sometimes defined as uncertainty of outcomes. This is a somewhat technical, but nevertheless useful definition and it is particularly applicable to the management of control risks. Control risks are the most difficult to identify and define, but are often associated with projects. The overall intention of a project is to deliver the desired outcomes on time, within budget and to specification.

For example, when a building is being constructed, the nature of the ground conditions may not always be known in detail. As the construction work proceeds, more information will be available about the nature of the ground conditions. This information may be positive news that the ground is stronger than expected and less foundation work is required. Alternatively, it may be discovered that the ground is contaminated or the ground is weaker than expected or that other potentially adverse circumstances exist, such as archaeological remains being discovered.

Given this uncertainty, these risks should be considered to be control risks and the overall management of the project should take account of the uncertainty associated with these different types of risk. It would be unrealistic for the project manager to assume that only adverse aspects of the ground conditions will be discovered. Likewise, it would be unwise for the project manager to assume that conditions will be better than he has been advised, just because he wants that to be the case.

Because control risks cause uncertainty, it may be considered that an organization will have an aversion to these risks. Perhaps, the real aversion is to the potential variability in outcomes. A certain level of deviation from the project plan can be tolerated, but it must not be too great. Tolerance in relation to control risks can be considered to have the same meaning as in the manufacture of engineering components, where the components must be of a certain size, within acceptable tolerance limits.