7/6/2023 0 Comments Risk probabilityThese are risks which we are unable to see because they are outside our experience or mindset. Lastly, we have blind-spots (so-called “ontological uncertainty”), sometimes also called Black Swans or emergent risks. The probability of this type of risk is 100% (the fact that we do not fully understand the requirement is certain), but the degree to which this might matter is uncertain.Ĥ. This might include elements of the requirement or technical solution, or market conditions or competitor capability. Third are risks relating to ambiguity (known as “epistemic uncertainty”), describing uncertainties arising from our lack of knowledge or understanding. Other variable parameters include cost, resource requirement, productivity, defect rate, performance, etc.ģ. The probability of running the trial is 100%, but its duration is uncertain. For example we may plan to run a 15-day trial, but the duration could in fact be anywhere between 10-20 days. Second we have risks arising from variability (also called “aleatoric uncertainty”), where some aspect of a planned task or situation is uncertain. We can estimate a probability of occurrence for each of these possibilities, which is less than 100% because the future event is uncertain.Ģ. Most identified risks are like this: a key supplier may go out of business, the client might change the requirement, or new regulatory constraints might be imposed. This is something that has not yet happened and it may not happen at all, but if it does happen then it has an impact on one or more of our objectives. The first type of risk is a future possible event, which we call “stochastic uncertainty”. Each of these is an “uncertainty that matters”, but only one type has probability less than 100%.ġ. But this leads to a very limited view of the types of risk that we need to understand and manage.Ī previous Risk Doctor Briefing (Number 73, July 2012) discussed four types of risks that could affect our businesses and projects. After all “uncertainty” is a key part of the definition of risk, and 100% probability means “certain”. Most people’s first reaction to the idea that a risk can have 100% probability is to disagree. In other words, they are either happening now or they are certain to happen in future. As I’ve discovered more about risk, I’ve realised that my colleagues were right! There are risks with 100% probability of occurrence. Some of my risk colleagues talked about risks with 100% probability, but I disagreed with them. One of the first things I learned about risk was that every risk has both a probability less than 100%, as well as an impact on at least one objective.
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