60 lines
2.1 KiB
Markdown
60 lines
2.1 KiB
Markdown
---
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tags:
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---
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# Risk
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## In Common Use
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Risk, in common parlance, is the chance that something "bad" will happen.
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As such, it is generally understood as a binary, win/loss relationship.
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This model of [[discrete-probability]] is ubiquitous of
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[[project-management-tm|Project Management™]],
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and is the sort assumed when using [[risk-registers]].
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> This scope of work presents a 1 in 10 chance of significant delay.
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## In Cost Estimation
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The prior model is well suited to project management,
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which (being reductive) cares about "why"s,
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where cost estimation only cares about the bottom line.
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It is generally not useful for construction cost estimation.
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Potential impacts sufficient to warrant documenting
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should usually just be [[proposals#exclusions|excluded]].
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Cost estimators usually understand risk in terms of [[continuous-probability]].
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The reality of cost estimation is that there are _no_ certain costs.
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Traditional construction estimates give a false impression of certainty
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because they operate on and return fixed values.
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With the most generous interpretation, they can be said to evaluate cost
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in the most likely case of each axis of uncertainty.
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"Escalation" means projecting recent pricing to a later date of purchase
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based on anticipated market conditions.
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> [!aside] ISO 31000
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> ISO 31000 defines risk as the "effect of [[uncertainty]] on objectives"
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> therefore referring to positive consequences of uncertainty, as well as negative ones.
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>
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> The standard gives a list on how to deal with risk:
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>
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> 1. Avoiding the risk by deciding not to start or continue with the activity that gives rise to the risk
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> 2. Accepting or increasing the risk in order to pursue an opportunity
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> 3. Removing the risk source
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> 4. Changing the likelihood
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> 5. Changing the consequences
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> 6. Sharing the risk with another party or parties (including contracts and risk financing)
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> 7. Retaining the risk by informed decision
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## Risk Tolerance
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Determining risk tolerance is a task usually appropriated by executives,
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often based on [[gut-feel]],
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but that is better determined mathematically.
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[Risk of ruin](https://en.wikipedia.org/wiki/Risk_of_ruin)
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