Uncertainty and Risk Management
We are rather good at being surprised when setting expectations for the future. This is the essence of risk. The difference between what we expect to occur or would like to occur, and what does occur.
The definition of risk in ISO 9000:2015 and ISO 31000 include the phrase “ effect of uncertainty”. Let’s remove some of the uncertainty around the term uncertainty in the context of risk and risk management.
An Uncertainty Definition or Two
In ISO 9000:2015, within the definition of risk a note expands on the term uncertainty. In summary it suggest when faced with missing or imperfect information about an event, probability, or outcome, we are uncertain.
Basically, when unsure, there is risk of the results being different than our expectations.
Synonyms for uncertainty include: unpredictable, unreliability, riskiness, doubt, indecision, unsureness, misgiving, apprehension, tentativeness, and doubtfulness.
In the context of risk, we often can examine the uncertainty to gauge the magnitude and potential actual outcomes. The degree of risk to some extent is measurable.
A hard part here is quantifying the impact of information we do not know we don’t know.
Dealing with Uncertainty
Recognizing you do not have sufficient information to always make the right or best or optimal decision is the first step in dealing with uncertainty.
Early in my career as a manufacturing engineer, I presented some experimental results that indicated a way to improve process yield. The results I presented were based on a very small dataset and I had plenty of uncertainty beyond the wide confidence bounds of the calculations. I certainty wanted to run more experiments, to gather and understand the impact of the change on the process better than with just a quick experiment.
My boss, said we will never have perfect data and at times we have to make the decision based on scant data. The concept is sound and the benefit worth the risk. So he agreed to let me monitor the impact as we rolled out the change in the factory.
Uncertainty exists. When making decisions it is a balance of the amount of uncertainty, the science, the business, and the range of likely outcomes.
Formally Dealing with Uncertainty
The product development process, think stage gate reviews, is a means to formally address uncertainty.
The objective of each state of work is to reduce uncertainty, gather information, to inform the decision concerning moving the project forward or not.
During the concept phase the team explores the technical feasibility of the idea (can we actually make this thing do that?), along with the examination of the potential market that may purchase the new widget (does anyone need this to solve a problem they have?).
Each step along the development process includes the exploration, examination, and study of what is not known in order to inform decisions concerning eventually offering the product to the market.
Detailing how you as an organization will address uncertainty (risk) for major decisions provides a framework to reduce uncertainty and minimize decision risk.
A good step in a formal risk management program is including a mechanism to ask ‘are we considering everything that we should?’ A check step on the process to understand the scope and magnitude of risk due to uncertainty.
We have to make decisions to move our organizations forward. These decisions rely on facts, experimental results, samples, projections, and other bits of imperfect information.
We do not have the time, not is it possible to have perfect information. Therefore, setting up mechanisms and processes to frame the discussion concerning what is known and unknown permits both the quantification of risk along with the minimization or uncertainty.
Also published on Medium.