"Uncertainty management is not just about managing perceived threats, opportunities, and their implications; it is about identifying and managing all the many sources of uncertainty that give rise to and shape our perceptions of threats and opportunities. It implies exploring and understanding the origins of project uncertainty before seeking to manage it, with no preconceptions about what is desirable or undesirable. Key concerns are understanding where and why uncertainty is important in a given project context, and where it is not. This is a significant change in emphasis compared with most project risk management processes" - Project Risk Management - Processes, Techniques and Insights, Second Edition, Chris Chapman and Stephen Ward.
All project risk comes from Uncertainty. Reducible uncertainty (Epistemic) and Irreducible uncertainty (Aleatory). In the context of projects, these uncertanties are present throughout the development lifecycle and contribute to risk in five major ways:
- Uncertainty about the range of variability in the cost, schedule, and technical performance of the project.
- Uncertainty about the basis of estimate for cost, schedule, and technical performance.
- Uncertainty about the technical performance attributes of the design and operation of the project's deliverables.
- Uncertainties about the business and technical objectives and priorities.
- Uncertainty about the fundamental relationships between the project participants.
At the top of the list is the uncertainty is the size of the parameters of the project. These uncertainties are created by:
- Lack of a clear specification of what is required
- Novelty or lack of experience of this particular activity
- Complexity in terms of the number of influencing factors and the number of interdependencies
- Limited analysis of the processes involved in the activity
- Possible occurrence of particular events or conditions that might affect project activities.
Only the last item is related to the probability of a specific event. The other sources arise from lack of understanding of what is involved.
To manage in the presence of these uncertainties, we must make estimates of the probabilistic and statistical behaviors both the reducible and irreducible risk created by the uncertainties.
A Good Definition of Risk
Efficient and effective project management requires appropriate control of all the sources of uncertainty. Focusing only on the probability of some event happening leaves out one-half of the sources of risk. The Aleatory uncertainty that creates the irreducible risk.
A better definition of risk is:
An uncertain effect on project performance rather than as a cause of an (uncertain) effect on project performance.
In all cases, estimates are needed to assess, evaluate, determine impacts, make an analysis of alternatives, assess the efficacy of corrective or preventive actions for reducible risk, or the application of margin for irreducible risk.
Since,
Risk Management is Project Manage for Adults - Tim Lister
Estimating is a critical success factor for risk management, meaning estimating is how adults manage projects.
