Uncertainty

Introduction

Because risk is the effect of uncertainty on objectives, it is important to understand the concept of uncertainty. Uncertainty is a lack of certainty about future outcomes, characterised by a lack of knowledge or information about events or circumstances.

Definition

ISO Guide 73:2009 Risk Management - Vocabulary defines uncertainty as “the state, even partial, of deficiency of information related to, understanding or knowledge of an event, its consequence, or likelihood.”

Similarly, HB 203:2012, Managing Environment-related Risk defines uncertainty as “a lack of knowledge arising from changes that are difficult to predict or events whose likelihood and consequences cannot be predicted accurately".

Managing Uncertainty

Uncertainty cannot be measured in quantitative terms through past models. However, uncertainty can be reduced through systematic efforts to obtain knowledge and informed opinion. Applying an iterative process to improve knowledge – when combined with recognising sources of uncertainty – enhances risk management thinking and can transform the risk assessment process and the selection of risk treatments. Some uncertainty will always remain, and organisations need to be sufficiently resilient to cope with unexpected circumstances.

Sources:

The content on this page was primarily sourced from the following:

• Material provided by Peter Flanagan, Capital Insight
• ISO Guide 73:2009 Risk Management - Vocabulary
• AS HB 203:2012, Managing Environment-related Risk