Risk Management

Risk is a term that is so broad in interpretation and context that any attempt to define it is futile and a form of “linguistic imperialism”. Risk should be understood “in context” and thus the current definition adopted by the Association of Project Management (APM) is unhelpful. Introduction Today, word risk is mentioned by specialists of a various disciplines. It seems like every person collides with word risk nearly every day whether he/she reads new medical articles or watches news on television. The simple question “What is risk? ” causes an open debate among practitioners related to Risk Management.

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Researchers argue that the term risk might be interpreted in either way leading to confusion. (Dr. Richard Kirkham, Week 1 Introductory Lecture 2010-2011). Association for Project Management (APM) defines the word “risk” as “an uncertain event or set of circumstances that, should it occur, will have an effect on achievement of one or more project objectives” and this definition conveys that term risk can be understood as a negative or positive element of achievement of project objectives. However, Dowie (1999) makes a point in replacing risk and all its related terms by “set of alternative terms and concepts”.

The research of Dowie suggests that ‘risk’ causes a difficulty in decision making due to its “multiple and ambiguous usages” which leads to misunderstanding in distinction of tasks. Ward and Chapman (2003) also put forward an issue to revise a terminology of the term “risk”. In their article, “Transforming project risk management into project uncertainty management”, published in International Journal of Project Management, it was reported that replacing “risk” with “uncertainty” could significantly broaden thought processes in “risk identification” which becomes “uncertainty identification” (p.5).

Many people may have heard that it is danger to leave the house with wet hair due to possibility to get cold. However, the danger of leaving the house with wet hair is immediate, it is quite certain and predicted and can be prevented. The major interest in those dangers that are less definitely known and less estimable. Therefore, firstly, the essence of uncertainty should be considered. Debates on an issue “risk against uncertainty” are long-running up-to-date.

This essay critically examines the dispute in risk management field regarding “risk” and “uncertainty” definition, discussion of the term uncertainty and its role in project management. Critical review Risks exist in projects intrinsically (APM Body of Knowledge, 5th edition). Risk a possibility that may occur and if it does, that may affect the project negatively or positively. “Negatively or positively” -most people see only bad side of word risk. Risk is associated with hazard, but risk may be undesirable for one person and benefit to another.

Dowie (1999) in his seminal article claims that there is a potential for misunderstanding and confusion with word risk and proposes to replace it by the appropriate names. Thus, Dowie says: You first used risk as a synonym of probability or chance in relation to event or outcome (“my risk of falling or dying”)… Secondly you used risk as a synonym to the harm or loss you might suffer- the undesired outcomes of death or the disability, as distinct from the chance or probability of those two undesired outcome occurring.

As Dowie (1999) continues in his claim, there is a tendency to fail to clarify the word “risk” on the condition that risk implies probability or utility, but the latter may exist separately and ” they are no longer concerned with risk”. In later issued article “Transforming project risk management into project uncertainty management”, published in 2003, Chapman and Ward coincide with Dowie concerns regarding usage of term risk and how it is associated with adversity, implying that context risk is seen as only threats to project objectives.

In their view, project risk management (PRM) restricts people’s thinking to perceive risk as a threat and prevent to consider the management of opportunities. However, present authors are opposed to Dowie to abandon the use of the term “risk” completely and raise the issue to transform PRM into Project Uncertainty Management. In economics, the definitions of risk and uncertainty are different, and the distinction between the two is clearer. To quote Boussabaine and Kirkham (2004), “The concept of risk deals with measurable probabilities while the concept of uncertainty does not”.

Chapman and Ward (2003) give the definition of uncertainty as “lack of clarity because of the behaviour of relevant project players, lack of data, lack of details” and argue that transformation of PRM into Uncertainty management is needed. Uncertainty management is not just about managing perceived threats, opportunities, but also about identifying and managing a great amount of uncertainty which give rise to and shape risk, threat and opportunities (Chapman and Ward, 2003, Stoelsnes and Bea, 2005).

Further, Chapman and Ward (2003) states that substitution of “uncertainty” to “risk” could considerably expand interpretation of “risk identification” which transmute into “uncertainty identification”. Additionally, the authors had the idea to change wording in PRM guidelines where risk is associated with threat. In their view, it is necessary to transform PRM into project uncertainty management to avoid negative association of the term “risk”. Nevertheless, most practitioners continue considering “risk” as an adverse consequence (Hillson, 2002). But some investigators (Perminova et al.

, 2008) raise issues of applicability and uncertainty is the right substitute of risk, as uncertainty cannot be predicted, then, a fortiori, planned since one can plan only what he/she knows for certain. “Defining uncertainty in projects – a new perspective” is an article written by Perminova et al. (2008) which attempts to display that despite considerable amount of research has been done, no definite interpretation of “uncertainty” between scholars have been brought to a successful conclusion. Their personal definition of uncertainty has been proposed as a critical element of project management.

The authors define an “uncertainty” as an “event or situation” which was not foreseen to state or make a declaration about in advance. In their view, risk and opportunities both exist in “uncertainty” and a manager with good skills such as intuition and ability to make critical distinctions and achieve a balanced viewpoint might see possible but not yet actual danger. In 2008, Perminova et al. take significant notice that no one common definition of “uncertainty” between students of management have been achieved. According to (Hillson, 2002, Perminova et al, 2008), uncertainty covers both opportunities and threats.

One of the more significant findings to emerge from this study is that most articles reviewed above cause to revise existing PRM procedures and focus on understanding of basic concepts of “risk” and “uncertainty”. It was also shown, that formulation of “risk” is based on threat association. Traditional project risk management process tends to consider only negative impact of risk which might be an unproductive method in decision making framework. Therefore, Dowie (1999) believes that complete renunciation of risk may resolve the issue of misunderstanding and confusion in communication which this word leads to.

However, risk developed to higher level including opportunities as well. On the other hand, though Chapman and Ward (2003) are “very sympathetic” to Dowie’s anxiety about using word risk, their solution of the problem dissents from his view. The writers make a point to revise a terminology of “risk”, but not to refuse the word “risk” and then they suggest replacing PRM with “Uncertainty management”. Additionally, the authors argue that uncertainty management covers many aspects of projects which make our perceptions of threats and opportunities.

Such expositions are unsatisfactory because despite that word “risk” was proposed to alter by “uncertainty”, most scholars are unable to define the latter term. Secondly, according to Perminova et al. (2008) “uncertainty” can not be predicted and managed: monitoring and risk analysis are effective tools to manage risks. It can be concluded from this study that these articles demonstrate that comparatively young subject as PRM made a big progress for a small period of time. All of them give the ground for further debates in PRM procedures while for scholars the new way of thinking.