Risk and uncertainty have an interesting relationship.  There is a high level of covariance between the two concepts.  Risks are risky because of all that you don’t know.  It would be amazing how many fewer risks there would be if we had perfect information.

All risk events can be described by two significant attributes: impact and probability.  Impact is what will happen if the risk becomes something tangible. Impacts are typically monetized or stated as the amount of effort needed to correct the problem if it occurs. The size of the impact can vary depending on where it occurs in the project lifecycle. For example, the impact of project cancelation on the first day is far smaller than it would be three days before implementation. Probability is the chance the risk will actually occur.  Probability is typically presented as the percentage. For example, the probability that a project will be canceled is small during the first few days after kick off and then typically increases during the middle and then falls later in the project (we will talk about sunk costs at a future date). As soon as the probability of a risk becomes 100% the risk is an issue.

Yogi Berra said, “It’s tough to make predictions, especially about the future.” We generally discuss risks as if we have perfect knowledge of the future, but we don’t.  One of the reasons that prediction is difficult is because we don’t know about what we don’t know.  This a colloquial definition of uncertainty. Because we don’t have perfect knowledge, any prediction of risk impact and probability is more notional than scientifically precise.  You might also point out that since we do not have perfect knowledge of the present or the future that we cannot anticipate all risks.  This represents the concept that the author and scholar Nassim Nicholas Taleb describes as black swan events, which are random and unpredictable.

When planning and managing a project’s risk, we must think about the impact and probability of the risk events that we can predict.  We will and should concentrate on those that we think will have a higher chance of occurring, and if they do occur, will cause significant pain.  We also need to recognize the fact that uncertainty is really a black hole that we are never going solve. Ultimately, we need to be vigilant.   The Agile technique, described here and here, of adding risks to backlog builds in a nearly continuous monitoring system that helps make sure that we do not to let risks sneak up on our projects.