95 lines
3.0 KiB
Markdown
95 lines
3.0 KiB
Markdown
---
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tags:
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- topic/risk
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- type/encyclopedia
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title: Risk
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---
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# Risk
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%%
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## TALK
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This note is for the concept of risk
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as understood by laymen and mathematicians.
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## TODO
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1. Relocate profession specific content to [[risk-management]].
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2. If [[#In Cost Estimation]]'s content needs to remain,
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and it isn't suited for [[actuarial-science-for-construction-estimating]],
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another cross-topic [[risk-management-for-construction-estimating]] will be necessary.
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I suspect that with some edits it will be most appropriate for [[actuarial-science]].
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%%
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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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> [!example]
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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 excluded.
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Cost estimators usually understand risk in terms of continuous probability.
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The reality of construction 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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> [!info] Escalation
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> 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]([ISO 31000:2018 - Risk management — Guidelines](https://www.iso.org/standard/65694.html)) 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 [[intuition]]),
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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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## Risk Analysis and Management
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### Risk Registers
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Risk Registers are a standard method of documenting [[risk]].
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They are a hallmark of [[project-management-tm]] practice.
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### Simulation
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[[monte-carlo-methods]]
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## Resources
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* [[the-failure-of-risk-management]]
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