This article addresses the confusion created by ISO and apparently parroted by PMI regarding the difference (or similarity) between risks and opportunities. PMI defines risk as “An uncertain event or condition that, if it occurs, has positive or negative effect on one or more project objectives.” This is of course sheer nonsense. Imagine addressing your board of directors and announcing: “Ladies and gentlemen, there is a risk that our profits will be larger than expected.” You’d be fired on the spot or even dragged off to the loony bin. Risks are never good things.
From various sources on Wikipedia, “In simple terms, risk is the possibility of something bad happening.”, also: “(Exposure to) the possibility of loss, injury, or other adverse or unwelcome circumstance; a chance or situation involving such a possibility.”
Unfortunately, ISO Guide 73:2009 defines risk as: ” effect of uncertainty on objectives” with a Note: “An effect is a deviation from the expected – positive or negative.”
As I referred to above, this is sheer lunacy. The whole world associates risk with bad things and always has. Why ISO wrapped bad and good outcomes into risk is beyond me, and also sadly, PMI blindly follows suit.
This article addresses risks and opportunities in the proper light, hopefully bringing sanity back to your understanding of risk. The overview:
Risk is actually a function, that is, a measurement. It is expressed as Risk = f (uncertainty, consequence). The consequence is often replaced with the term “damage”.
Risks have causes; these are the hazards your project faces. For example, you decide there might be a risk of costs escalating more than you budgeted for. To deal with it, you first have to identify the causes of the greater than expected escalation. Could be federal policies spurring inflation, higher market demand for the things you need to buy and the competition driving prices up, just to name a couple of examples. These two things, federal policies and market demand are the hazards that give rise to your risk.
When you deal with risks, you are actually implementing “safeguards.” In the example above, you might decide to buy things as soon as possible before the hazards give rise to the risk event, i.e. higher costs.
Risks vs. Opportunities
ISO and PMI not withstanding, risks and opportunities are NOT the same thing, nor even related. You can almost think of them as opposite sides of the same coin. Take, again, the example above, while there is a risk of higher costs, there is also perhaps an opportunity to encounter lower costs. Perhaps you can buy more quantities of what you need, receiving a quantity discount, and using the extra materials/equipment etc. for another project. Like the board of directors example at the beginning, would you feel comfortable telling your stakeholders “There is a risk our material costs will be lower than we budgeted for.”? I know the answer to that (unless you did escape from the loony bin, LOL).
Let’s take a look at how risks compare with opportunities.
As we consider each of these six items, we see that some are in the future only and some are in the now. You cannot have a risk in the now or past. Imagine saying “there is a risk of having an earthquake right now.” Risks have some degree of uncertainty BETWEEN 0 and 1. If the probability is 0, then there is no risk. Likewise, if the probability is 1, there is no risk, it is certain. When we have a negative consequence without uncertainty, and it is still ahead of us, i.e. in the future, we call that an Issue, still to be dealt with. If the issue is not resolved and we reach time now, it has become a problem.
As we consider opportunities, it is also coupled to some degree of uncertainty. If there is no uncertainty about the opportunity, it is not an opportunity, either because the probability is 0 or the probability is 1. I will illustrate with an example in a moment. If we had an opportunity and decided to take advantage of it, it is a Decision, no longer an opportunity. We have taken the uncertainty out of it, but it is still ahead of us, in the future. Once we actually realize the benefit of the opportunity, we call it a Win.
We are all familiar with coupons that offer a discount on some product. If you are like me, there is a huge uncertainty associated with this opportunity. I hate to think of the many times I took the coupon to the store, only to bring it safely home because I forgot about it at the checkout. So, let us look at such opportunities. You go to the store with the intent to use the coupon. We have already seen the uncertainty. I get to the store and make a decision to use the coupon. It is no longer an opportunity, I’ve decided to use it; I have a Decision. On the other hand, if I withhold that decision until I get to the checkout, it remains an opportunity. At the checkout, I either hand over the coupon and realize the benefit. I’m in the “now” and have realized the Win. Or, at the last second I decide to keep it for a future use. In this case, the decision may remain a decision or revert to an opportunity as there is now the reintroduction of uncertainty about using the coupon.
So, in conclusion, I would recommend that we stick with the normal, human concept of risks, as defined in various dictionaries, and recognize that closely related cousins of risks are opportunities. They also have uncertainty but are good things while risks are bad things. It’s just easier to avoid confusion and keep our sanity.