# Risk and Uncertainty When discussing reliability, there is the classic definition of risk as the likelihood of something bad happening. Risk management, in this context, involves assessing the potential consequences of failure and the associated uncertainties. We see the terms risk and uncertainty often very close to each other. But what do they mean? Risk and uncertainty are different things. Dictionary definitions state that risk is quantifiable whereas uncertainty is not. This distinction between risk and uncertainty was highlighted first by Frank Knight, who wrote in his 1921 work _Risk, Uncertainty, and Profit_: > [!quote] > _"Uncertainty must be taken in a sense radically distinct from the familiar notion of Risk, from which it has never been properly separated... The essential fact is that 'risk' means in some cases a quantity susceptible of measurement, while at other times it is something distinctly not of this character; and there are far-reaching and crucial differences in the bearings of the phenomena depending on which of the two is really present and operating… It will appear that a measurable uncertainty, or 'risk' proper, as we shall use the term, is so far different from an unmeasurable one that it is not in effect an uncertainty at all"._ Following the _Knightian_ terminology, risk is rarer than we would like to admit. Quantifiable uncertainties are a bit of a luxury and the exception, not the rule. The belief that risks can be precisely measured in an uncertain world amounts to an illusion—or delusion—of certainty. Still, we hear the word ‘risk’ way more often than the word uncertainty. Talking about risk soothes our minds with a false idea of scientific accuracy compared to the hazier, more elusive uncertainty. It’s also worth noting how often risk assessments are forced to converge into discrete outcomes— something either happens or it doesn’t. An enemy attacks or doesn’t, a loan is repaid or isn’t, a horse wins or loses, a budget is approved or isn't. However, there are continuous variables that are strong, albeit indirect indicators of risk. One common of such indicator of risk is volatility or variability. A project whose requirements are changing all the time is objectively riskier than a project where the variability is lower, simply because schedules cannot progress or plans cannot be made on top of continuously changing rules and wishes. More mathematically speaking, a higher variance indicates greater dispersion or variability of outcomes, which can be interpreted as higher risk. Risk management is, at the end of the day, about asking and collecting relevant information and growing a sense of ‘comfortability’ about moving forward with a decision. Which necessarily involves a dose of intuition. Intuition has enjoyed a bad reputation in engineering environments. It is seen as unscientific, vague, and non-professional. Our society often resists acknowledging intuition as a form of intelligence, while taking logical calculations at face value as intelligent[^2]. But intuition is actually intelligence stemming from well-informed non-conscious processes. When it comes to uncertain scenarios, most decisions are gut feelings. And there’s nothing especially wrong with that. Jack Welch, the overly celebrated CEO of General Electric, explained that good decisions are made “straight from the gut[^3]. [^2]: https://www.goodreads.com/book/show/18114056-risk-savvy [^3]: https://www.goodreads.com/book/show/5559.Jack