Risk and Uncertainty are two different things. Uncertainty does not necessarily mean risk. In the mathematical sense the terms are used differently in practical terms the meanings are the same.
But treating them the same creates a problem. When we can't tell the difference between Risk and Uncertainty, we can't tell what we have control over and what we don't. So let's look first at the theoritical difference between risk and uncertainty.
Risk is aleatoric and uncertainty is epistemic. What the heck does this mean?
- Alleatoric is Latin for alea = dice. This is a chance event. There are a know set of possible outcomes, we just don't know which one will come up this time when we throw the dice. There are only 6 possible outcomes for a single die. Add another die with its six possible outcomes and we have 36 possible outcomes. That's all there is, but we can't tell which of the 32 outcomes will happen when we toss the dice - unless of course they are loaded.
- Epistemic is episteme in Greek for knowledge. Uncertainty is the lack of "knowing." We have uncertainty of which of the 36 outcomes will happen when we toss the dice. But the dice can only land in one of the 32 configurations.
So the relationship between risk and uncertainty goes like this
Risk is measurable uncertainty
Uncertainty is unmeasurable risk
In the dice world we know the probability distribution for each of the 36 outcomes.
So we know our chances of throwing the two dice that total a 7 or 11 (called a natural) and the pass line wins. If a 2, 3, or 12 is thrown on the first roll that is craps and the pass line losses. All other combinations 4, 5, 6, 8, 9, and 10 become the point and the roller must repeat those number before a 7 is thrown.
For project elements we must know the difference between risk and uncertainty.
- There is uncertainty that the new processor will be fast enough to handle the load because there is no way to test its capacity before we put it to work.
- There is a risk - a 78% chance - that the turkey's we order will not arrive on or before November 23 in time for preparation for the 18 people coming to our Thanksgiving dinner. This is an actual number, but I don't really know the probability that the organic turkeys will arrive when needed.
This is the basis between Statistics and Probability. It is the Probability of Success we are after. But we can't answer that question without an understanding of the underlying Statistics of the processes we are trying to manage.
When we don't know the difference between risk and uncertainty and we don't know the difference between statistics and probability, then it will be likely (a probability) that our project is going to run into trouble and we don't know it is coming. We can't separate those things that are naturally variable and those thing that have probabilities of occurring that we can control.
- There is a probability that when I go to the garage and take out the lawn mower, that it will not have enough fuel in the tank to mow the entire lawn. There is a uncertainty about the level of fuel in the tank. There is a risk that if it is too low, I can't complete the mowing job. The uncertainty can be turned into a certainty by looking in the tank to see the fuel level. The risk can be handled by filling the mower tank from the storage tank.
- There is a probability that when I start my drive to the airport on Sunday to attend the NDIA conference in Maryland there will be ice on the road - since it is winter here. If I don't provide a buffer in time then there is a risk I will miss my flight. The uncertainty can be addressed by looking at the weather forecast on Saturday night, and the risk can be handled by leaving 30 minutes before my normal departure.