Today, managing for risk and uncertainty are cornerstones of the project manager’s role. It is common practice for practitioners to use the terms risk and uncertainty interchangeably which can be unhelpful when managing long-term and complex projects, minimising adverse impacts and taking advantage of upside opportunities that may develop. However, the literature points to important differences in practices to measure, cost, mitigate and manage project risk and deal with future uncertainty which suggests that the distinction may warrant greater understanding at the project level.
Contemporary project management requires practitioners to understand a great deal about the risk profile of a project and manage in conditions of uncertainty. This is especially the case with long-term infrastructure projects. Managers also need to understand a client’s risk appetite, carry out risk-weighted measurement of costs, and make decisions about those risks that can be absorbed with reasonable confidence, and those that should be transferred. Additionally, the manager is required to prepare risk mitigation and management strategies and anticipate future uncertainty in the form of externalities that threaten project outcomes.
This paper distinguishes between risk and uncertainty in the project management context and examines how the distinction influences decision-making in contemporary project management with particular focus on probability and judgement. It also argues that project managers should consider a wider set of variables when considering the impacts of risks and unpredictable future events including the behavioural responses of agents, the role of ownership and control, and the complex relationship between bounded rationality, experience and judgement.
"Risk and uncertainty in project management decision-making,"
Public Infrastructure Bulletin: Vol. 1
, Article 13.
Available at: http://epublications.bond.edu.au/pib/vol1/iss8/13