Core Risk Theory & Definitions Flashcards
Lectures 1 & 2 Revision (9 cards)
What is the definition of risk in project context and how is it different to an issue?
Definition from PMI/APM
- “Risk is uncertainty that matters. It is uncertainty that, If it occurs, will have a positive or negative impact on achieving project objectives
- Risk is not equal to an issue. As an issue is an event that has occurred
What is the difference between risk and uncertainty?
Think about how decisions can be expressed
- Risk: Probabilities are known (e.g. rolling a dice) - Probabilities are known for each possible outcome.
- Uncertainty: Probabilities are unknown for each possible outcome (e.g. estimating cost overruns on new technology).
What are the three sources of uncertainty and which one is most commonly referenced?
🔧Technical - Inadequate data or models (most common reference of uncertainty)
🧠 Psychological - Optimism bias.
💰 Political-economic - Strategic misinterpretation, misaligned incentives.
The flat line and shark pit sketch
What is optimism bias?
When the expectation of reaching an objective is less uncertain than reality.
The waiter and customer sketch
What is strategic misinterpretation?
When a promise is different to the reality.
What is the relationship between strategic misinterpretation and optimism bias? Why is this relationship important?
One is weak when the other is high. Both explanations are necessary to understand inaccuracy in forecasting amongst people.
Why is it important to differentiate between risk and uncertainty in projects?
- Construction projects are faced with a wide range of uncertainties
- Resources should be focused on uncertain events with a high impact and high probability of occurence
What is the equation for risk?
Impact x Probability
What is the Rumsfield matrix purpose and contents?
Suggests responses to uncertainty based on understanding and data available
