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risk.md
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---
id:
aliases: []
tags:
- risk
---
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Risk, in common parlance, is the chance that something "bad" will happen.
As such, it is generally understood as a binary, win/loss relationship.
This model of [[discrete-probability]] is ubiquitous of
This model of discrete probability is ubiquitous of
[[project-management-tm|Project Management™]],
and is the sort assumed when using [[risk-registers]].
and is the sort assumed when using [[#risk registers].
> [!example]
> This scope of work presents a 1 in 10 chance of significant delay.
## In Cost Estimation
The prior model is well suited to project management,
which (being reductive) cares about why's,
where cost estimation only cares about the bottom line.
where cost estimation only cares about the bottom line.
It is generally not useful for construction cost estimation.
Potential impacts sufficient to warrant documenting
should usually just be [[proposals#exclusions|excluded]].
should usually just be [[proposals#exclusions|excluded]].
Cost estimators usually understand risk in terms of [[continuous-probability]].
Cost estimators usually understand risk in terms of continuous probability.
The reality of cost estimation is that there are _no_ certain costs.
Traditional construction estimates give a false impression of certainty
@@ -31,11 +34,12 @@ because they operate on and return fixed values.
With the most generous interpretation, they can be said to evaluate cost
in the most likely case of each axis of uncertainty.
"Escalation" means projecting recent pricing to a later date of purchase
based on anticipated market conditions.
> [!info] Escalation
> Projecting recent pricing to a later date of purchase
> based on anticipated market conditions.
> [!aside] ISO 31000
> ISO 31000 defines risk as the "effect of [[uncertainty]] on objectives"
> [ISO 31000]([ISO 31000:2018 - Risk management — Guidelines](https://www.iso.org/standard/65694.html)) defines risk as the "effect of [[uncertainty]] on objectives"
> therefore referring to positive consequences of uncertainty, as well as negative ones.
>
> The standard gives a list on how to deal with risk: