The terms risk and uncertainty are usually used interchangeably. While they refer to the same concept, there is some difference in their meaning. Risk refers to the possibility of an event that causes harm (Strand & Oughton, 2009). Risk includes such hazards as a fire or flooding which interrupt the normal operations of an enterprise. On the other hand, uncertainty refers to a situation where it is difficult to determine the state of affairs in the future (Strand & Oughton, 2009). The concept of uncertainty is based on the fact that the environment in which enterprises operate is volatile and it is difficult for firms to accurately determine how events will unfold. Both risk and uncertainty pose threats to a business. It is for this reason that businesses need to manage risks and uncertainty. While the management of risk and the management of uncertainty are largely similar, there are a number of significant differences that set the two apart.
Comparison
Management of risk (MoR) is defined as a “route map for risk management, bringing together principles, an approach, a set of interrelated processes, and pointers to more detailed sources of advice on risk management techniques and specialisms” (Axelos, n.d.). From this definition, one can understand that MoR consolidates resources in order to employ measures that are geared towards risk prevention and mitigation. It used a multidisciplinary approach, which is useful in giving advice on how principles, approaches and processes should be used alongside each other with keen interest on the nature of company objectives, which are at risk. Therefore, one can note that before responding to a risk, principles are adopted, which give direction to a particular approach from which processes are established. On the other hand, Grote (2009) describes management of uncertainty as a framework that examines the importance of living with technical as well as organizational uncertainties, or even capitalizing on them, but without losing a company’s stability that results from reducing uncertainty. The framework proposes a decision process, which supports a systematic evaluation of costs and benefits of various activities, such as maintenance, reduction and persistent of uncertainty (Grote, 2009). In this regard, management of uncertainty consolidates various systems such as planning and safety management systems, and how they interact with human resource management in evaluating a cost-benefit approach towards dealing with uncertainty. Based on the definitions given, it is evident that MoR and management of uncertainty consider the importance of a systems thinking approach towards dealing with risk and/or uncertainty. Authors Jamie Monat and Thomas Gannon (2015) described systems thinking as a model of thinking about work, life and the society considering the importance of interconnections. Applying this theory on the two frameworks in question, one can notice that both consider the importance of systems working together to achieve a common objective. For instance, MoR uses a team effort to formulate principles, which inform an approach and resources are used to make process practical. The same is the case for management of uncertainty as it considers the role of personnel and how they interact with various systems to assess the cost-benefit of an approach designed for dealing with uncertainty. Apart from that, communication qualifies as a common feature in both frameworks. MoR emphasizes the importance of communication, which plays a fundamental role in the various processes of dealing with risks. These processes are planning, assessing, identifying and implementation, with the central factor being communication (Axelos, n.d.). Brasher et al (1999) noted that in the management of uncertainty, communication is important. For instance, during a state of uncertainty, information can help reduce uncertainty through allowing better assessment between and among alternatives.
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Contrast
The management of risk and the management of uncertainty are more different than they are similar. One of the differences between risk and uncertainty management concerns controllability. It is indeed possible to control risks (Constanta-Nicoleta, 2016). For example, a business may install fire extinguishers in a bid to control the risk of a fire that could cause devastation. It is not possible to institute similar control measures in uncertainty management. Unlike the concept of risk which refers to concrete and material realities, uncertainty is an abstract idea and this makes it difficult to institute control measures. The possibility of minimization is another issue that sets the management of risk apart from the management of uncertainty (Constanta-Nicoleta, 2016). While an enterprise can take steps to minimize risk, it is simply impossible to minimize uncertainty. For example, when a firm understands that the threat of a flood is inevitable, it can stake such measures as building barriers to minimize the damage that will result in the event that flooding occurs. The firm can do nothing to minimize the uncertainty around flooding. Whether flooding occurs is beyond the control of the firm. The assessment of outcomes is yet another matter that distinguishes the management of risk and the management of uncertainty (Rocquigny, 2012). It is indeed possible to determine in advance what the outcome of a given risk will be. For example, suppose that there is a 50% chance that a fire will occur. Suppose further that if the fire does occur, a business will suffer $500,000 in damage. This example implies that firms can anticipate risks and their corresponding outcomes. This makes it easy to manage risks. It is common practice for firms to sign up for insurance policies or set aside amounts that will cover any damages that occur as a result of a risk. On the other hand, the management of uncertainty suffers from the fact that it is not possible to determine the outcomes of uncertainty. The party responsible for managing uncertainty essentially lacks any tools or mathematical techniques that they can use to predict the magnitude of the outcome of the uncertainty. Another notable difference between the management of uncertainty and the management of risk lies in objectivity. Comparatively, risk is measurable while uncertainty is not. This means that it is possible to objectively determine risk (Constanta-Nicoleta, 2016). Therefore MoR bases its approach on such determination, which is not case when it comes to management of uncertainty. Uncertainty can only be examined subjectively. For example, one may rely on intuition to guess how events will unfold. The outcome of a violent war is an example of an uncertainty. It is nearly impossible for an individual to determine with confidence and accurately how the war will progress. Overall, it is much easier for firms to manage risk. This is because risk is quantifiable and there statistical and mathematical models that allow for the computation of risk to be conducted are available. The difficulties in quantifying uncertainty stems from the fact that uncertainties involve many variables and firms cannot rely on information from previous experiences to manage uncertainty.
Conclusion
Management of risk and management of uncertainty are concepts with points of convergence and divergence. Both of them involve situations that cannot be predicted confidently and accurately. Risk and uncertainty management enable firms to brace for the future. If risks and uncertainties occur, they could cause devastation. This underscores the need for firms to be proactive and implement protective measures. These measures include purchasing insurance policies and erecting barriers which shield business operations against known or unknown threats.
References
Brashers, D., Neidig, J., Haas, S., Dobbs, L., Cardillo, L. and Russell, J. (2000). Communication in the management of uncertainty: The case of persons living with HIV or AIDS. Communication Monographs, 67(1), pp.63-84. Constanta-Nicoleta, B. (2016). Managing Project Risks for Competitive Advantage in Changing Business Environments. IGI Global. Grote, G. (2009). Management of Uncertainty: Theory and Application in the Design of Systems and Organizations. Springer Publishing Company. Monat, J. & Gannon, T. (2015).What is Systems Thinking? A Review of Selected Literature Plus Recommendations. American Journal of Systems Science, 4(1): 11-26. doi:10.5923/j.ajss.20150401.02 Rocquigny, E. (2012). Modelling Under Risk and Uncertainty: An Introduction to Statistical, Phenomenological and Computational Methods. Hoboken, NJ: Wiley. Stand, R. & Oughton, D. (2009). Risk and Uncertainty as a Research Ethics Challenge. Retrieved 10th December 2017 from https://www.etikkom.no/globalassets/documents/publikasjoner-som-pdf/risk-and-uncertainty-2009.pdf
