Uncertainty Management: Measuring Risks and Opportunities

Uncertainty Management: Measuring Risks and Opportunities
What is it?

Uncertainty management is the attempt to gain control of and manipulate project uncertainties. An uncertainty can be a risk — something that negatively impacts the project, or an opportunity — something that can have a positive impact on the project. Uncertainties are measured using rational assumptions based on historical data, analytics, projections, and strategic goals. Historic data is used to detect patterns of behaviors. Behavior patterns are analyzed to determine a commonality that is present in repetitive outcomes, and therefore project the likelihood of a particular outcome surfacing.

Why do you want to manage uncertainties?

It provides a simplistic view of the uncertainties linked to a project. The benefits of uncertainty management can be great and well worth the cost for the stakeholders. Uncertainty management:

  • creates an understanding of possible risks and their effects,
  • serves as a warning system for confirm to raise,
  • guide to the monitoring and controlling of risks,
  • provides a plan for restoration of processes after the risk event occurs, and
  • offers a means for closure should attempts to control the risks fail.
What impacts them?

Uncertainty management requires time and effort to plan, implement, and maintain. The project schedule, labor, and market conditions affect the cost associated with managing uncertainties. The project schedule often has time sensitive cost to consider, such as interest charges and contract fees. Labor costs can include the cost of employee initiatives and rewards in addition to standard wages. Market conditions can affect the availability of resources. How do you respond to uncertainties? According to Dr. Kezner (2009), there are the responses to risks.

  1. Acceptance – willingness to take the risk
  2. Avoidance – not willing to take the risk
  3. Control – willing to act to control the risk
  4. Transfer – willing to share or transfer the risk.

Similarly, there are four options of how to respond to risks (Kerzner, 2009).

  1. Acceptance – awareness of possible opportunities
  2. Enhance – increase the probability of opportunities to occurring
  3. Exploit – take advantage of the opportunities
  4. Share – share opportunities with partners to maximize them
How do you measure uncertainties?

To determine a project’s level of uncertainty exposure, the following formula is to be used:

Probability * Impact= Risk Exposure

Probability  – Probability is the likelihood of uncertainties occurring. Probability is measured as such:

Table 1 - Probability

Table 1 – Probability

Impact  – Impact measures the affect the uncertainty on the project’s outcomes. In a basic uncertainty management plan, scope, quality, cost, and time are common areas of the project plan that are affected by uncertainties. Uncertainties can affect these areas positively — opportunities, or negatively — risks. Table 2 shows a scale to measure how risk influences scope, quality, cost, and time.

Table 2 - Impact: Risks

Table 2 – Impact: Risks

Table 3 shows a scale to measure how opportunities as they relate to cost and time. Scope and quality were omitted because any opportunistic changes to these two areas will generally result in a separate project plan.

Table 3 - Impact: Opportunities

Table 3 – Impact: Opportunities

Uncertainty Exposure – As stated earlier, uncertainty exposure is the product of risk and probability. Multiplying these two numbers gives a rank for the uncertainty. Table 4 is an Uncertainty Scoring Matrix for Risks, and Table 5 is an Uncertainty Scoring Matrix for Opportunities.

Table 4 - Uncertainty Scoring Matrix - Risks

Table 4 – Uncertainty Scoring Matrix – Risks

 

Table 5 - Uncertainty Scoring Matrix: Opportunities

Table 5 – Uncertainty Scoring Matrix: Opportunities

Once the uncertainty exposure scores is found it can be measured against the Uncertainty Priority Matrix to help decide how to respond to the threat or opportunity.

Table 6 - Uncertainty Priority Matrix

Table 6 – Uncertainty Priority Matrix

The Uncertainty Priority Matrix is a simply template to be used for any project. It can also be used as a template to build specialized matrices for more complex projects.

Conclusion

Taking time to identify, rank, and address your project’s uncertainties can be beneficial to the outcomes of the project. For more information on how measuring uncertainties will benefit your project, contact us at service@danielenterprisellc.com.

 

Reference

Kerzner, H. (2009). Project Management: A Systems Approach to Planning, Scheduling, and Controlling. Hoboken, NJ: John Wiley & Sons, Inc.

Spread the love!

Learn More

Follow Us Online

Services Provided

Basic & Standard Website Design
eCommerce Website Design
• Growth Driven Website Design
A La Carte
Website Updates & Repairs
• Business Consulting

Knowledge Sharing

Tools of the Trade Blog
Knowledge Base
• Business Directory (coming soon!)
• Online Business Conference & Expo (coming soon!)