vault backup: 2025-07-03 17:03:26

risk.md

@@ -9,7 +9,8 @@ tags:
 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 [[project-management-tm|Project Management™]],
+This model of [[discrete-probability]] is ubiquitous of
+[[project-management-tm|Project Management™]],
 and is the sort assumed when using [[risk-registers]].
 
 > This scope of work presents a 1 in 10 chance of significant delay.
@@ -35,51 +36,24 @@ 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.
 
-### The Problem
-
-An incongruity exists between estimators and management.
-Estimators know that estimation isn't even close to 100% accurate,
-however for management to admit this would require them to admit to executives
-that they allowed the bid despite the potential that it would not return the expected margin.
-
-This is an obviously immature mindset.
-More competent organizations would attempt to quantify this potential as risk,
-however words like "risk" and "assumption" are upsetting to management
-who would maintain that a "good" estimate has no risk or assumptions,
-so instead of quantifying risk we use qualitative queries and expressions.
-The usual call-and-response looks something like this:
-
-> "Are you confident in this price?"
-> "Yes, I feel good about it."
-
-The reality of estimation is that it involves approximations, assumptions, and judgment under uncertainty.
-Incomplete design information, market volatility, and unforeseen site conditions inherently affect accuracy.
-
-In contrast, management often expect deterministic results,
-treating estimates as precise forecasts rather than probabilistic assessments.
-This expectation can stem from a lack of understanding about the estimation process
-or a desire to simplify communication with higher-level executives.
-
-The terms "risk" and "assumption" while common in mature parlance,
-require acknowledgement of [[uncertainty]], a threatening concept
-when personal accountability is ignorantly placed above organizational responsibility.
-
-Assuming a manager was interested in preserving risk analysis details,
-frameworks for presenting job details usually lack the detail required to do so,
-and are sometimes even incompatible with the concept of multiple possible prices due to optional scope.
-
-## ISO 31000
-
-ISO 31000 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:
-
+> [!aside] ISO 31000
+> ISO 31000 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:
+>
 > 1. Avoiding the risk by deciding not to start or continue with the activity that gives rise to the risk
 > 2. Accepting or increasing the risk in order to pursue an opportunity
 > 3. Removing the risk source
 > 4. Changing the likelihood
 > 5. Changing the consequences
 > 6. Sharing the risk with another party or parties (including contracts and risk financing)
-> 7. Retaining the risk by informed decision
+> 7. Retaining the risk by informed decision
+
+## Risk Tolerance
+
+Determining risk tolerance is a task usually appropriated by executives,
+often based on [[gut-feel]],
+but that is better determined mathematically.
+
+[Risk of ruin](https://en.wikipedia.org/wiki/Risk_of_ruin)