Managing Uncertainty and Risk on the Project

Abstract

One of the most challenging aspects in projects is to manage the risk and the uncertainty. Yet with the knowledge we possesses, it is a topic, which for many is difficult to handle. Many stakeholders are involved in the projects and therefore might have different opinions of what is the best solution approach is. The majority of people tends to think in deterministic terms of an optimal solution instead of probabilistic terms of a robust solution. This article will highlight the main differences of the risks and the uncertainties in a portfolio management. The risk management processes will be clarified in its four stages, where the identification of the problem, assessment of the risks, how to respond to the risks and lastly how to control the risks. To assess the risks, a risk-management process tool will be utilized and further explained.

Definition

Risk and uncertainty has many different definitions and can be hard to settle down to only one way to define it. Risk management had their origins in the insurance industry in USA in the 1940s. Project Portfolio management refer not only to a single project or a single program, but all projects and programs of it. When talking about risk, people often link it together with uncertainty, while others refer to it as opportunity. Risk can also be defined as a combination of the probability of an event and its consequences. There is a relationship between risk, uncertainty and opportunities. This is illustrated in figure xxx Risk has many kinds of statements and can be classified into three different classes. The first class is the with the negative aspects. The second class is related to the uncertain, which is the unknown and unexpected issues. The third is correlative to possibility and result. In table xxx, it can be seen who as classified what into the three categories.

Table

The authors states project failure is highly connected with uncertain event (uncertainty). Uncertainty includes three different consequences, and the first is good for the project / portfolio, the second has no effect on the result for the project, and the last is harmful for a project success and objective. The first consequence of uncertainty seen as an opportunity for the project / portfolio. The second can be explained by something uncertain occurring throughout the life cycle of the project but the result of the uncertain event is either good or harmful for the project’s objective and success. And based on that we can say that uncertainty has no effect on the project. According to this section, the following definition of uncertainty is: “An unexpected event, if it occurs, may have either no effect or a good or bad effect on at least one of the project’s objectives and success.“ And risk is defined as: “An uncertain event or situation, if it occurs, may have threat(s) or bad effect(s) to at least one of the project’s objectives and success”