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Differentiating between Risk and Uncertainty in the Project Management Literature Dr Fiona Saunders School of Mechanical, Aerospace and Civil Engineering The University of Manchester Email: Fiona.saunders@manchester.ac.uk 6th July 2016 The purpose of this paper is to review the literature on risk and uncertainty in the management of projects. It has too many unknown variables which do not even allow one to estimate as to what is going to happen. Risk vs Uncertainty. Key difference: Risk is essentially the level of possibility that an action or activity will lead to lead to a loss or to an undesired outcome.The risk may even pay off and not lead to a loss, it may lead to a gain. Uncertainty and risk are closely related concepts in economics and the stock market. But, so many of us are bothered by the big question: what is the real, essential difference between risk and uncertainty? The Difference Between Risk and Uncertainty There is an important distinction between the terms “risk” and “uncertainty.” It is recognized that the taxonomy and definitions of “Risk” and “Uncertainty” have been defined by several sources, including risk refers to the measurement of both the probability and consequence of failing to achieve a set goal of the project. They felt a distinction should be made between risk and uncertainty. Risk is defined as the possibility or probability of an unpleasant or undesirable event. Nevertheless, there is evidence that people can learn from warnings and risk information, such We live in a busy world. Risk and Uncertainty The concept of (fundamental) uncertainty was introduced in economics by Keynes (1921, 1936 and 1937) and Knight (1921). Sensitivity analysis takes into account the interrelationship between project variables B. Probability analysis can be used to assess the uncertainty associated with the project C. Uncertainty can be said to increase with project life, while risk increases with the variability of returns D. In case of risk all possible future events or consequences of an action or decision are known. Note that in many cases, “risk” is used as shorthand for both risk and uncertainty, although the distinction between them as discussed in this chapter is quite important. Many biases in risk assessment and regulation, such as the conservatism bias in risk assessment and the stringent regulation of synthetic chemicals, reflect a form of ambiguity aver-sion. The modern distinction between economic risk and uncertainty was presented by the economist Frank Knight. The Difference Between Risk and Uncertainty Risk. The definitions of risk and uncertainty were established by Frank H. Knight in his 1921 book, "Risk, Uncertainty, and Profit," where he defines risk as a measurable probability involving future events, and he argues that risk will not generate profit. Each one of us take risks everyday and many times we are uncertain about things that we should definitely and absolutely be certain about. “Managing Risk and Uncertainty” - A FSN & Oracle White Paper 3 Introduction Traditional budgeting and planning is a straight jacketed and hierarchical exercise. Goals and budgets are set at the top of the organization and cascaded down, yet plans on how to reach the In business, risk might suggest the potential loss of money, time, or information. Most professionals accept the fact that risk can be equated with uncertainty. However, when taking risk into consideration, it is necessary to ensure that the consequence that is related to the event must be accounted for. 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