Eya - risk and uncertainty

Evaluation of the factors that contribute to risk and uncertainty and the difference between risk and uncertainty in project management.

Date: 13/10/2018

Prepared by: Majed Abdeen

In one of my previous projects, the high-management were not aware of the importance of risks and uncertainties, thus, we dealt with difficulties during the project, despite my cautions at the beginning. Understanding is an important factor in causing uncertainty, in our case; the customer was not familiar with the concept of the project as it was novel to them, which resulted in them not knowing what they wanted. This led to many repeated changes, which increased the risks and uncertainties we were dealing with.

Introduction

When managing projects, PMs must deal with risks and uncertainties, regardless of the type of project; PMI notes, "All projects are uncertain. Uncertainty is inevitable…" (PMI-RM, 2009, p. 13). Lechler et al. identify risks as "known-unknowns" and uncertainties as "unknown-unknowns", noting that "classic project management does not clearly differentiate between risks and uncertainty" (Lechler, Edington, & Gao, 2012, p. 59).

Definitions

Examining uncertainty, (McLain, 2009, pp. 60-61) identifies a number of definitions, which focus on uncertainty as being something unknown and unmeasurable or challenging to measure, hence "unknown-unknowns". (Navigating Complexity, 2014, p. 21) defines Uncertainty as: "the state of being unsure, of not knowing an issue or situation. In programs and projects, uncertainty may be described as a lack of awareness and understanding of issues, events, path to follow, or solutions to pursue." Thus (McLain, 2009, p. 61) defines Uncertainty as having "inadequate information about when project activities will achieve project goals", since it is more difficult to predict and solve problems when information is lacking. He quantifies different levels of uncertainty based on the amount of information available

· Foreseen; information is available; influences are identified and understood

· Unforeseen; lack of information about the future;

· Chaos; severe lack of any information

In contrast, Risk is defined as "An uncertain event or condition that, if it occurs, has a positive [opportunities] or negative [threats] effect on one or more project objectives." (PMBOK6, 2017, p. 720), hence, "known-unknowns". According to (PMI-RM, 2009, p. 9), Risk has two key dimensions: the "uncertainty dimension may be described using the term “probability” and the effect may be called “impact”. (Zwikael & Ahn, 2011, p. 26) defines project risk as a “measure of the probability and consequence of not achieving a defined project goal.” All sources of uncertainty, including individual risks, affect the project as a whole; this is Overall Project Risk. (PMBOK6, 2017, p. 396)

Differences.

Uncertainty includes all identified risks, but risk doesn't include uncertainty (Lechler, Edington, & Gao, 2012, p. 59)

Some major differences:

Factors

When considering Risk and Uncertainty, the PM must take into account factors which cause them. (PMBOK6, 2017, p. 416) PMI observes that there are frameworks we can use for identifying sources of Risk. The literature identifies some key factors which cause Risk and Uncertainty. These include the following:

- Understanding - Scope not understood (PMBOK6, 2017, p. 133).
- Changes - Changes are inevitable (PMBOK6, 2017, p. 168).
- Environments - high-variability environments (PMBOK6, 2017, p. 400).
- Unfamiliarity/Novelty - Caused by changes (McLain, 2009, p. 62).
- Duration - Long lifecycles (McLain, 2009, p. 61) and (Oehmen, 2015, p. 4).
- Complexity - number of project activities (McLain, 2009, p. 62).
- Perspective - Stakeholders/PM (Krane, Olsson, & Rolstadas, 2012, p. 55) Need for risk management (Zwikael & Ahn, 2011, p. 33).
- Conflict – Relationships (Krane, Olsson, & Rolstadas, 2012, pp. 52,56).
- Uncertainty - Both as factor and result (Navigating Complexity, 2014, p. 22).

Conclusions

Since Risk and Uncertainties are inevitable, they are a major factor in project selection (Kloppenborg, 2012, p. 1), so Project Managers must be familiar with them, and the factors causing them to successfully manage the project. After all, "Project Risk Management is not an optional activity" (PMI-RM, 2009, p. 4) It is an ongoing process during the lifecycle, essential to successful delivery of project objectives (cost, schedule, quality). Quality must be a key element over cost for projects with higher risk and uncertainty (PMBOK6, 2017, p. 474).

References

Kloppenborg, T. (2012, January). Project Selection and Initiation Questions Leading to Good Risk Management. PM World Today, XIV(1).

Krane, H. O. (2012). How Project Manager–Project Owner Interaction Can Work Within and Influence Project Risk Management. Project Management Journal, 43(2), 54–67. doi:10.1002/pmj.20284

Lechler, T. G., Edington, B. H., & Gao, T. (2012). Challenging Classic Project Management: Turning Project Uncertainties Into Business Opportunities. Project Management Journal, 59-69.

McLain, D. (2009). Quantifying project characteristics related to uncertainty. Project Management Journal, 40(4), 60–73. doi:10.1002/pmj

Navigating Complexity, P. (2014). NAVIGATING COMPLEXITY: A PRACTICE GUIDE. Newtown Square, Pennsylvania, USA: Project Management Institute, Inc.

Oehmen, J. T. (2015). Complexity Management for Projects, Programmes, and Portfolios: An Engineering Systems Perspective. PMI White Paper. Newtown Square: Project Management Institute, Inc.

PMBOK6. (2017). A Guide to the Project Management Body of Knowledge (6th ed.). Pennsylvania: Project Management Institute, Inc.

PMI-RM. (2009). PRACTICE STANDARD FOR PROJECT RISK MANAGEMENT. Pennsylvania, USA: Project Management Institute, Inc. Retrieved from www.pmi.org

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