Posted: June 5th, 2021
What is a riskAccording to the historical background, the term ‘risk’ takes his origin from the Arabic word risq or the Latin word riscum (Merna and Al-Thani, 2005). The Arabic risq means a chance with positive outcome. In opposite, the Latin riscum is an event with unfavourable issue. In the 17th century, term reached Europe and meant ‘’in terms of good and bad fortune’’ (Wikipedia, 2010). In our days term `risk’ acquires a slightly changed meaning. Macmillan dictionary (2010) defines risk as ‘’the possibility that something unpleasant or dangerous might happen’’. Another interpretation of this term was established by UK Association for Project Management (2006): ‘’risk – is an uncertain event or set of circumstances which, should it occur, will have an effect on the achievement of the projects objectives’’. In different walks of life risk has different meanings, with negative, positive or neutral effect. For instance, in the project management, many discussions and debates are conducted by scholars and researchers about using the term `risk’. There is a tendency treat risk as uncertainty (Perminova, et al., 2008). For fully understanding whether this treatment is correct or not, it is necessary to define term `uncertainty’. According to Oxford dictionary (2010) uncertainty is ‘’something that you cannot be sure about; a situation that causes you to be or feel uncertain’’. If consider term `uncertainty’ from angle of psychology, uncertainty is illuminated as ‘’a state of mind characterized by a conscious lack of knowledge about the outcomes of an event’’ (Perminova, et al., 2008).
Variety studies about distinctions between risk and uncertainty exists in our days. Practitioners and researchers cannot to come to one sole resolution. As was mentioned above, risk is treated as uncertain event, and some researchers incline to transform risk management to uncertainty management (Ward and Chapman, 2003). Variety opinions about using terms ‘risk’ and ‘uncertainty’ and the reason of the transforming risk management to uncertainty management will be considered in this essay.
In accordance with the article `A positive approach to risk requires person centred thinking’ risk is described as ‘’a futile form of linguistic imperialism’’ (Neill, et al., 2009). Risk in its popular usage is essential only for political and social decision making processes, not for risk analysis processes. Sven Ove Hansson (2005) agrees with the article, that risk is an ineffective form of linguistic imperialism. Also he thinks that in practice to define only single meaning of ‘risk’ is impossible. In spite of this, attempts at such linguistic imperialism are not uncommon. He explains his statement, that the term `risk’ may have different meanings dependently of the subject and situation, when risk is used.
According to David Hilson and Murray-Webster (2007) risk has two characteristics: uncertainty and consequences. But risk ‘’is not the same as uncertainty’’; the key difference between these two notions ‘’arises from consideration of the consequences’’. Risk is an uncertainty that could influence one or more objectives, and authors present the example: a child will pass examination tomorrow with uncertain results, but these results are not important for other people. For them exam outcome is uncertainty, which is insignificant and therefore it cannot be pose as risk. Uncertainty about weather in Kazakhstan tomorrow also insignificant for most of people and so this too is not a risk. But if the child is a Kazakh and he was promised by his father to go to fishing trip if his exam results will be high, both uncertainties become major and significant in the context, and therefore they can be posed as risk. From this example it becomes understandable that ‘’there are some uncertainties that do not matter in the relevant context’’. Author states that linking risk with objectives clarifies that every aspect of life is risky. Also he affirms that this link is necessary to the risk management, ‘’since it is a prerequisite for identifying risks, assessing their significance and determining appropriate responses’’.
In the book `Reducing Project Risk’ risks connects uncertainty with objectives. ‘’Risk is the effect of uncertainty on objectives, to be managed opportunity’’. Risk exists when probabilities of possible issues are known, and uncertainty has a place, when these probabilities are unknown (Kliem and Ludin, 1997). Halim A. Boussabaine and Richard J. Kirkham (2004) in the book ‘Whole Life-cycle Costing’ also write that ‘’concept of risk deals with measurable probabilities while the concept of uncertainty does not’’. When event encounters with risk, probabilities can be developed, and when event encounters with uncertainty, probabilities cannot be defined. If probability cannot mathematically be expressed it is uncertainty, while risk can be calculated in terms of probability. Finkel (1990 cited in Merna and Al-Thani, 2005) distinguish risk and uncertainty as: risk is taken to have quantifiable attributes, and a place in the calculus of probabilities, whereas uncertainty does not.
Above were shown differences between risk and uncertainty, and their characteristics. Now will be observed terms ‘risk’ and ‘uncertainty’ in project management.
Stephen Ward and Chris Chapman (2003) believe that different definitions of term `risk’ create a problem of its equivocal use ‘’as a synonym of probability or chance in relation to an event or outcome’’. They cite on Oxford Dictionary, where risk is described as danger or probability of bad outcomes. Also they refer on definition of risk, which was published by the UK Association for Project Management, which was described above. In spite of considering risk as an event with positive or negative effects, risk frequently is treated as event with an undesirable issue. Risk has a negative effect, rather than positive, people predispose to consider only unfortunate probabilities (Neill, et al., 2009). Ward and Chapman incline treat risk in hazard terms and Project Risk Management as ‘’primarily threat management’’, and they suggest use the term `uncertainty management’ instead of `risk management’. In their opinion, use term `uncertainty management’ is more preferable, as uncertainty management means analysing and understanding the root of project uncertainty without prejudice about what desired or not before managing it. Researchers propose to transform risk management to uncertainty management, as use the term uncertainty management can improve project management processes, and they suggest to start revising by using term `uncertainty’ every time instead of `lack of certainty’. Mostly important in this revising of terms that focus will be concentrate on process, not in product. They suppose that project performance can be more modified and improved, if this revising will be accepted, as from their point of view risk management restricts the contribution to project performance, as is threat orientated and ‘’not readily focussed on sources of operational variability in the performance of organisational activities’’, when uncertainty management perspective more concentrates on project life cycle stage.
Perminova et al. (2008) incline to agree with the statement of Ward and Chapman and suggest developing and researching the question of transforming. In their work term `uncertainty’ is defined ‘’as a context for risks as events having a negative impact on the project’s outcomes, or opportunities, as events that have beneficial impact on project performance’’. Risk and uncertainty are not synonymous. They are cause and consequence. Risk is one of the involvements of uncertainty, it cannot treat as uncertainty. From their point of view risk is certain and known, where uncertainty is event unpredictable and unexpected. Project manager can foresee potential threat and can undertake appropriate measures. In situation of uncertainty it is not possible to compute risk, therefore risk is less dangerous than uncertainty. Planning of risks is a significant step of project management in order to prevent undesirable issue of the project. But defining of risks depends on abilities and skills of project manager to recognise possible threats. Also project manager should be able use own knowledge from previous experience in order to overcome uncertain situations. However, it is not always possible to recognise all risks in advance. That is why authors believe that planning is not enough instruments in managing risks. ‘’One can plan only what one knows for certain.’’ Risk managers plan and consider risks, but there are uncertainties, which cannot be considered and foresaw. As the Danish Nobel Prize-winning physicist Niels Bohr said: ‘’Prediction is very difficult, especially about the future’’, to foresee all possible outcomes are very difficult too or even impossible (Hilson and Murray-Webster, 2007). Development of project management abilities and skills is ‘’an essential part of understanding and managing uncertainty’’. If the organisation or firm want to perform and extent themselves, it is necessary to manage uncertainty – if you do not have uncertainty, you do not have any evolution. Unfortunately, not all understand the importance of development of uncertainty management, because of lack understanding of definition of uncertainty. Perminova, Gustafsson and Wikstrom recommend continuing exploring uncertainty in order to develop project management.
Another risk researcher Jack Dowie (1999) claims that term `risk’ is a ‘’obstacle to improved decision and policy making’’, and it does not matter if this term uses separately or with other terms. `Its multiple and ambiguous usages’ constantly exposes to threat of separation such tasks as identifying evidence and making value conclusions. He writes, citing on Walker’s paper, that risk defiles all discussions of probability ‘’because of the implicit value judgement/s that the term always bring with it’’, just as it defiles all discussions of value estimate ‘’because of the implicit probability judgement/s that it contains’’. Also he states that instead of `risk decisions’ and `risk factors’ people should use simply `decisions’ and `factors’. It is not essential to use these terms with the word `risk’. Word `risk’ only prevent from making right decisions. Kaplan (1997 cited in Dowie, 1999) joins to his words. He says: ‘’for [communication] to take place, it is crucial that we have words that we all understand and use in the same way’’. However, `risk’ is ‘’not one of those words and that attempts to clarify it are doomed’’. Eventually, Dowie identifies that `risk’ has not important meaning; therefore `risk’ should be avoided in using. Risk has no importance and significance in making decisions. He strictly argues against risk.
There are many opinions and points of view about using term ‘risk’. Ones say that this using confuse and prevent from making right decisions and they argue definitely against risk, others that risk should be considered in certain situation and dependently of the subject, and it is wrong to examine risk in common application, also some of researchers suggest to transform risk to uncertainty. However, all of them agree that this field of discussions still stay open and need to explore and develop until all researchers will come to the one sole agreement. In project management, confronting with risk problems, sometimes disconcerts and makes difficult to reach definite purpose and in the case of using term ‘risk’ it seems that Perminova, Gustafsson and Wikstrom have a right point of view to this topic, that risk management and utilizing term ‘risk’ are needed researching and further exploring. Examining and studying an area of using term ‘risk’ can help improve not only risk management, but the whole project management too (Perminova, et al., 2008).
Association for Project Management (2006). APM Body of Knowledge. 5th ed. High Wycombe: Association for Project Management.
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Perminova, O. et al. (2008). Defining uncertainty in projects – a new perspective. International Journal of Project Management 26(1), 73-79.
Ward, S. and Chapman C. (2003). Transforming project risk management into project uncertainty management. International Journal of Project Management 21(2), 97-105.
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