There are two types of uncertainty on projects:
- Aleatory known as objective, stochastic, or irreducible.
- Epistemic known as subjective, state-of-knowledge, or reducible.
Aleatory uncertainty is related to random variables. The intrinsic random nature of the phenomena occurring during the development or operation of the project. Work duration, cost variances for labor and materials, natural variances in the performance of products or services.
Epistemic uncertainty is associated with the lack of knowledge about the properties and conditions of the phenomena occurring during the development and operation of the project.
A full description of risk needs to assess both Epistemic and Aleatory uncertainties that impact the probability of success of the project.
To make decisions in the presence of these uncertainties - Epistemic and Aleatory - we must make estimates. Estimates of our lack-of-knowledge for Epistemic uncertainty. Estimates of the impact on the project from the epistemic risk created by the risk when it comes true.
Estimates of the underlying stochastic behavior of project elements - the random naturally occurring processes of cost, schedule, and technical performance of products or services. Estimates of the impact on the project from the randomly occurring uncertainties creating risk when those processes impact the project.
There can be no credible decision of the effacacy of the corrective or preventive actions needed to increase the probability of project success, in the presence of Epistemic or Aleatory uncertainty without making estimates.
Knowing the efficacy of the corrective or preventive actions only works when these actions are TAKEN by the project or product development team. But we can't know what to DO, until we know the root cause of the uncertainties, and the corrective or preventive actions needed to reduce the impact of the risk on the probability of project success.
