Risk and uncertainty relationship

Risk and uncertainty - Etikkom

risk and uncertainty relationship

I never thought that risk and uncertainty are different terms until I started my PMP exam Can someone tell me the relationship of risk and uncertainty. Reply. A series of studies provides support for this principle in decision under both risk and uncertainty and shows that people are less sensitive to uncertainty than to. Well they are very well connected to say the least!! Let's look at this in a simplistic manner Uncertainty is something that we face each day in.

In both cases, science has crucially been trusted as lighting the way to truth and facts. In practice, scientific risk assessments are often used as a basis for decisions. Making a decision almost invariably involves taking a risk, so to legitimise political decisions it has become essential to be able to say that they are based on scientific knowledge.

Traditionally it has been deemed relatively unproblematic to maintain a clear division of labour between the risk assessments made by researchers based on scientifically established facts and political risk management and decision-making balancing priorities between different values and interests.

Lack of knowledge It has become increasingly clear, however, that in many real-life situations, scientific knowledge falls short as a basis for decision-making, and that the distinction between science and politics is often far from obvious.

See also The politics of research ethics. One reason why this has recently become evident is that humans exert an increasingly profound influence on their surroundings and seek to control increasingly complex systems.

For example, new technology has entailed consequences that until now were regarded as not only highly unlikely, but that were even beyond imagination.

Difference Between Risk and Uncertainty (with Comparison Chart) - Key Differences

Global climate change provides an obvious example. Scientific risk assessments are nevertheless used a basis for decision-making. In situations characterised by lack of knowledge about probabilities or consequences, this is fraught with problems. These are situations characterised by uncertainty, rather than by calculable risk. Uncertainty may be a temporary state, pending science's development of new knowledge.

In other cases, we can observe that long-term consequences of human activity that interact with complex natural and social systems in practice remain unpredictable. For this reason, there are people who claim that we need to take into account the situation of permanent uncertainty in which we sometimes find ourselves. In addition, it is a characteristic of complex systems such as ecosystems or society that a number of equally credible outcomes or future states may be put forward.

It is therefore quite obvious that science makes choices when explaining reality, and that different models, different academic disciplines and different scientists describe reality in different ways. Thus, risk assessments depend on the types of scientific knowledge which are fed into them.

This may have an impact on the authority of science as a basis for decision-making. The precautionary principle How can we make sensible and appropriate decisions in the absence of certain knowledge? In some cases, a decision may be postponed while awaiting more knowledge. However, not all decisions can be postponed quick action may sometimes be called for, as is the case for a number of environmental problemsand furthermore, as noted above, not all uncertainty is reducible or temporal.

In some cases, we may have to learn how to live with scientific uncertainty. The increasing dependencies of modern society on information and computers networks both in private and public sectors, including military [15] [16] [17] has led to new terms like IT risk and Cyberwarfare.

Risk vs Uncertainty in Project Management

Information assurance and Information security Information security means protecting information and information systems from unauthorised access, use, disclosure, disruption, modification, perusal, inspection, recording or destruction.

Information security has grown to information assurance IA i. While focused dominantly on information in digital form, the full range of IA encompasses not only digital but also analogue or physical form.

Information assurance is interdisciplinary and draws from multiple fields, including accounting, fraud examination, forensic sciencemanagement sciencesystems engineeringsecurity engineeringand criminologyin addition to computer science. So, IT risk is narrowly focused on computer security, while information security extends to risks related to other forms of information paper, microfilm.

Information assurance risks include the ones related to the consistency of the business information stored in IT systems and the information stored by other means and the relevant business consequences.

Insurance[ edit ] Insurance is a risk treatment option which involves risk sharing. It can be considered as a form of contingent capital and is akin to purchasing an option in which the buyer pays a small premium to be protected from a potential large loss.

Risk - Wikipedia

Insurance risk is often taken by insurance companies, who then bear a pool of risks including market risk, credit risk, operational risk, interest rate risk, mortality risk, longevity risks, etc. Indeed, they may define these professions; for example, a doctor manages medical risk, while a civil engineer manages risk of structural failure. A professional code of ethics is usually focused on risk assessment and mitigation by the professional on behalf of client, public, society or life in general.

In the workplace, incidental and inherent risks exist. Incidental risks are those that occur naturally in the business but are not part of the core of the business. Inherent risks have a negative effect on the operating profit of the business.

In human services[ edit ] The experience of many people who rely on human services for support is that 'risk' is often used as a reason to prevent them from gaining further independence or fully accessing the community, and that these services are often unnecessarily risk averse. Most studies of HROs involve areas such as nuclear aircraft carriers, air traffic control, aerospace and nuclear power stations.

Organizations such as these share in common the ability to consistently operate safely in complex, interconnected environments where a single failure in one component could lead to catastrophe. Essentially, they are organisations which appear to operate 'in spite' of an enormous range of risks. Some of these industries manage risk in a highly quantified and enumerated way.

risk and uncertainty relationship

These include the nuclear power and aircraft industrieswhere the possible failure of a complex series of engineered systems could result in highly undesirable outcomes. The usual measure of risk for a class of events is then: The total risk is then the sum of the individual class-risks; see below.

Where these risks are low, they are normally considered to be "broadly acceptable". A higher level of risk typically up to 10 to times what is considered broadly acceptable has to be justified against the costs of reducing it further and the possible benefits that make it tolerable—these risks are described as "Tolerable if ALARP ", where ALARP stands for "as low as reasonably practicable".

Risks beyond this level are classified as "intolerable". The level of risk deemed broadly acceptable has been considered by regulatory bodies in various countries—an early attempt by UK government regulator and academic F. Farmer used the example of hill-walking and similar activities, which have definable risks that people appear to find acceptable. This resulted in the so-called Farmer Curve of acceptable probability of an event versus its consequence.

The technique as a whole is usually referred to as probabilistic risk assessment PRA or probabilistic safety assessment, PSA.

risk and uncertainty relationship

See WASH for an example of this approach. Financial risk In finance, risk is the chance that the return achieved on an investment will be different from that expected, and also takes into account the size of the difference. This includes the possibility of losing some or all of the original investment.

Difference Between Risk and Uncertainty

In a view advocated by Damodaran, risk includes not only " downside risk " but also "upside risk" returns that exceed expectations. Financial risk may be market-dependent, determined by numerous market factors, or operational, resulting from fraudulent behaviour e. A fundamental idea in finance is the relationship between risk and return see modern portfolio theory.

risk and uncertainty relationship

The greater the potential return one might seek, the greater the risk that one generally assumes. A free market reflects this principle in the pricing of an instrument: For example, a US Treasury bond is considered to be one of the safest investments.

In comparison to an investment or speculative grade corporate bond, US Treasury notes and bonds yield lower rates of return.

risk and uncertainty relationship

The reason for this is that a corporation is more likely to default on debt than the US government. Because the risk of investing in a corporate bond is higher, investors are offered a correspondingly higher rate of return.

A popular risk measure is Value-at-Risk VaR. There are different types of VaR: The latter is used in measuring risk during the extreme market stress conditions. In finance, risk has no single definition. In Novak [26] "risk is a possibility of an undesirable event". In financial markets, one may need to measure credit riskinformation timing and source risk, probability model risk, operational risk and legal risk if there are regulatory or civil actions taken as a result of " investor's regret ".

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With the advent of automation in financial markets, the concept of "real-time risk" has gained a lot of attention.