Risk vs Uncertainty . . . again


I’m not sure people in general understand the difference between risk and uncertainty so here is an update on an article dated 2012.

Barry Ritholtz does a good job in the article quoting Michael Mauboussin

http://ritholtz.com/2012/12/defining-risk-versus-uncertainty/

Risk: We don’t know what is going to
happen next,Rick_Uncertainty but we do know what the distribution looks like.

Uncertainty: We don’t know what is going to happen next, and we do not know what the possible distribution looks like.

The distinction is important in the area of strategic planning.

ROIs for initiatives should always include a Risk Assessment (worst case, expected, best case).

Approvers of ROIs are well advised not to expect to end up too close to the bottom or too close to the top.

In respect of uncertainty, ROIs should also always include exit strategies.

About kwkeirstead@civerex.com

Management consultant and process control engineer (MSc EE) with a focus on bridging the gap between operations and strategy in critical infrastructure protection, healthcare, connect-the-dots law enforcement investigations, job shop manufacturing and b2b organizations. (C) 2010-2017 Karl Walter Keirstead, P. Eng. All rights reserved. The opinions expressed here are those of the author, and are not connected with Jay-Kell Technologies Inc, Civerex Systems Inc. (Canada), Civerex Systems Inc. (USA) or CvX Productions.
This entry was posted in Decision Making, Risk Analysis, Strategic Planning, Uncategorized. Bookmark the permalink.

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