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Uncertainty_and_Risk.pptx
- 1. UNCERTAINTY AND RISK NOTALL UNCERTAINTY IS RISK; ALL RISKS ARE UNCERTAIN MANAGING RISK IN PROJECTS BY:-ISRAR KHAN RAJA - PRESTON UNIVERSITY-ISLAMABAD
- 2. UNCERTAINTY AND RISK the range of uncertainties facing us in the modern world are both extensive and pervasive. all uncertainties are not matter equally, and some do not matter at all. separate out those uncertainties which matter, and to develop appropriate responses to them. The degree to which something matters can be described in terms of its effect on our ability to achieve our objectives, at whatever level those exist.
- 3. UNCERTAINTY AND RISK A pragmatic approach to ‘risk’ treats it as that subset of uncertainty which matters because if it occurs it will affect achievement of objectives. Risk management offers a solution to our need to address uncertainty, since it provides us with a structured way of identifying and managing those sources of potential variation which matter. The definition of risk as ‘uncertainty that, if it occurs, will affect achievement of objectives’ includes both negative and positive risks, threats and opportunities, both of which are types of future uncertainty, differing only in the nature of their impact on objectives. All of this is important for projects, which are designed to achieve specific objectives in order to deliver value and benefits to the organization.
- 4. Risk and Uncertainty Frank Knight summarized the difference between risk and uncertainty "… Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated. … The essential fact is that "risk" means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far- reaching and crucial differences in the bearings of the phenomena depending on which of the two is really present and operating. … It will appear that a measurable uncertainty, or "risk" proper, as we shall use the term, is so far different from an un-measurable one that it is not in effect an uncertainty at all
- 5. Current Sources ofUncertainty Natural environment Social environment Political environment Economic environment Technological environment Business environment Pandemics Financial Environment Globalization and international business Terrorism Climate changes Global warming
- 6. Current Sources ofUncertainty This rapid rise in uncertainty in so many dimensions of modern life has led to a crisis of confidence, wit ,many believe the world is both out of control and uncontrollable
- 7. Black Swan Theory Events which are rear, with extreme impacts, and which people try to rationalize post hoc into retrospective predictability. Such events have shaped all of human history, and that they should be expected even though cannot be predicted. The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The theory was developed by Nassim Nicholas Taleb to explain: The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology.
- 8. Black Swan Theory The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities). The psychological biases that blind people, individually and collectively, to uncertainty and to a rare event's massive role in historical affairs. Unlike the earlier philosophical "black swan problem", the "black swan theory" refers only to unexpected events of large magnitude and consequence and their dominant role in history. Such events, considered extreme outliers, collectively play vastly larger roles than regular occurrences
- 9. RESPONDING TO UNCERTAINTY RELIGION SCIENCE LAW
- 10. RESPONDING TO UNCERTAINTYIN BUSINESS WORLD
- 11. the Old Worldand the New World, and that businesses need to change their paradigm in order to survive and prosper.
- 12. Distinguishing Between Uncertaintyand Risk Uncertainty Lacking certainty; not able to be accurately known or predicted; not precisely determined, established or decided; liable to variation; changeable. Ambiguity, ambivalence, anxiety, changeableness, concern, confusion, conjecture, contingency, dilemma, disquiet, distrust, doubtfulness, guesswork, hesitancy, hesitation, incertitude, inconclusiveness, indecision, irresolution, misgiving, mistrust, mystification, oscillation, perplexity, qualm, quandary, query, reserve, scruple, skepticism, suspicion, trouble, uneasiness, unpredictability, vagueness. Risk Possibility of incurrin misfortune or loss; hazard; involving danger, perilous. Accident, brinksmanship, contingency, danger, exposure, fortuity, fortune, gamble, hazard, jeopardy, liability, luck, openness, opportunity, peril, possibility, prospect, speculation, uncertainty, venture, wager.
- 13. A Pragmatic Distinction the task of risk management is quite specific. It is to enable individuals, groups and organizations to make appropriate decisions in the light of the uncertainties that surround them. The key word here is ‘appropriate’. How can we determine what response is appropriate for any particular uncertainty? One way is to separate the various uncertainties into two groups: those that matter to us, and those that do not matter.
- 14. A Pragmatic Distinction There are perhaps an infinite number of uncertainties in the universe but they do not matter equally, indeed some do not matter at all while others are literally vital. As we seek to make sense of our uncertain environment and decide what to do in order to move forward, we need to know which uncertainties matter, and then respond appropriately to those. Any uncertainties which do not matter can be ignored, or perhaps reviewed from time to time to see whether they or our circumstances have changed to the point where they might now matter. This leads to a proto-definition of ‘risk’ which offers a useful distinction to guide our thinking and practice: ‘risk’ is ‘uncertainty that matters’
- 15. Uncertainty ...... Thatmatters ‘UNCERTAINTY … ’ ‘An uncertain event or condition …’ ‘The combination of the probability of an event …’ ‘An uncertain event or set of circumstances …’ ‘The chance of something happening …’ ‘Combination of the probability of an event occurring …’ ‘Effect of uncertainty …’ ‘Uncertainty inherent in plans and the possibility of something happening (i.e. a contingency) …’ ‘An uncertain event or set of events …’ ‘A risk is measured by a combination of the probability of a perceived threat or opportunity occurring …’ ‘A possible occurrence …’ ‘… THAT MATTERS’ ‘… that if it occurs has a positive or negative effect on a project’s objectives.’ ‘… and its consequences.’ ‘… that should it or they occur would have an effect on achievement of one or more project objectives.’ ‘… that will have an impact on objectives.’ ‘… and its consequences on project objectives.’ ‘… on objectives.’ ‘… that can affect the prospects of achieving business or project goals.’ ‘… that should it occur will have an effect on the achievement of objectives.’ ‘… and the magnitude of its impact on objectives.’ ‘… which could affect (positively or negatively) the achievement of the objectives for the investment.’
- 16. Three Refinements Risksas Opportunities Risks linking uncertainty with objective Risks management has a particular importance for project management
- 17. Risks as Opportunities that the effects of risk on objectives are not wholly negative, these could be ‘positive or negative’ Such positive possibilities are usually called ‘opportunities’. view these merely as ‘good luck’, the unlooked-for fortuitous events that could save time, save money, increase productivity, enhance reputation and so on ‘risk’, as possible future events that might occur, and which if they were to occur would have an effect on achievement of objectives, and which therefore require us to identify and manage them proactively.
- 18. Distinct Benefits ofthe concept of risk as ‘’threat and opportunity’’ Exploits more opportunities Permits trade-offs Increases chance of success Supports innovation and creativity Increases efficiency Motivates teams
- 19. Risks linking uncertaintywith objective If risk is defined as ‘uncertainty that, if it occurs, will affect achievement of objectives’, then it applies wherever there are objectives. Risk management is not just relevant to technical or delivery disciplines, but affects every part of an organization from top to bottom. Successful identification and management of uncertainties that matter is essential for success across the business at every level.
- 20. Risks Management inProject Management it is true that objectives are important at all levels, they are particularly relevant to projects. These are launched to create the deliverables and capabilities which deliver value to and through the business. Setting and achieving objectives are at the heart of project management, and they are the focus of most of the activities at this level. As a result, risk management has a particular importance for project management