Risk Management

How Do You Handle Event Risk versus Non-Event Risk?

What is the difference between risk and uncertainty, or event risk and “non-event” risk? It is not just a question of semantics; it can have legitimate effects on the course of a project. In a post for the PM Perspectives Blog, Rick Graham examines the roots of project risk and uncertainty.

Eventual Risk

Graham thinks that many things get added to project risk registers that do not actually constitute “event” risks; they are just uncertainties that got stuck there. When ambiguity exists like this in the physical documenting of risks, then that in itself is a risk. Graham provides a simplified hypothetical example of driving from Paris to Frankfurt and tries to figure out how long it should take. He collects data points: 5 hours is the ideal time, 6 hours is more likely, and it could be upward of 25 hours if the car breaks down. That provides an estimate range of 5 to 25 hours, which is too wide:

In refining our estimate, it must be understood that the range 5 to 25 hours comprises two completely distinct forms of uncertainty. The range 5 hours to (let’s say) 8 hours comprises what we may call ‘estimating’ uncertainty, that is, we only have enough information at the moment to say that the duration will be, say 6 hours +/- a certain percentage[.] This equates to accuracy levels addressed in the PMBOK cost and schedule knowledge areas.

… The range 8 hours to 25 hours comprises ‘event’ risk as understood traditionally by the PMBOK. In order to refine this estimate we must take a conventional risk approach: identify risks, analyse, prioritise, and develop responses to the high priority risks.

Graham says that “uncertainty of estimating” should not be contained in the risk register, though the actual event risk identified should be. Fortunately, PMBOK6 expands on how to approach “non-event” risks, by way of performing quantitative analysis with a computer.

For further elaboration on these ideas, you can view the original post here: http://www.esi-intl.co.uk/blogs/pmoperspectives/index.php/how-many-kinds-of-uncertainty-are-there/

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