Risk and Uncertainty are often considered to be the same thing - but each is a different type of unknown, with different techniques needed to manage them, according to Dr Penny Burns.
Risk applies to those unknowns where we know enough about the determinants to put probabilities around outcomes - the throw of a dice, for example. In asset management, risk applies to the life of an asset, or the timing of a maintenance intervention, where through observation, data analysis and testing, we understand the underlying drivers of asset wear and tear and deterioration - age, use, conditions of use (or abuse) - and are thus enabled to calculate a probability of outcomes from given actions.
Uncertainty refers to those unknowns where we don’t know enough to assign probabilities - for example the nature and timing of technological innovation, climate change and social or structural change. Any ʻprobabilityʼ not assigned on hard evidence and sound judgment, is just a ʻguessʼ and not a probability.
Risk management techniques, based on probabilities, are not an appropriate means of dealing with uncertainty. However, since they’ve served us well in other areas, and because we know them, there is a tendency to want to use them for cases of the unknown.
The statement ʻif you canʼt measure it, you canʼt manage itʼ applies only to risk - not to uncertainty. Risk can be measured - probabilities are measures. Uncertainty cannot be measured because it refers to situations where we do not know enough to put measured probabilities on outcomes.
It can be useful to compare uncertainties that arise from operations within our own organisations (and therefore within our control) with those arising from outside our control sphere, where all we can do is manage a response.
Let’s call them Internal Uncertainties and External Uncertainties.
Internal uncertainties can be reduced by the structural frameworks or systems we adopt, such as careful internal auditing of asset management plans, peer reviews to ensure our structures are as efficient as we can make them, and tools such as the Investment Logic Maps, now so successfully applied by state and local governments in Victoria.
To manage external uncertainties we need to develop resilience. For this purpose we turn to “scenario thinking’, which offers an approach to understanding and analysing seemingly intractable problems with “critical uncertainties” that span a range of boundaries. It is an approach that is inclusive, rather than selective. As such, it can be used in conjunction with, can incorporate data from, and can provide input to, other methods. It can be used by individuals, but is particularly suited to groups with different organizational, social and disciplinary backgrounds. (Scenario Thinking, Wright George and Cairns, George. Palgrave MacMillan 2011)
Risk management techniques are largely engineering techniques; structural frameworks and scenario thinking for dealing with uncertainty are management techniques. These ideas are further explored in AMQ International’s “Strategic Asset Management” Issue 359, February 4 2013 - “Uncertainty”. See www.amqi.com