I was going through some notes of mine trying to clean up some older documents and I ran across this great quote from Frank Knight (an Economist who studied the effects of risk on market transactions) on the difference between risk and uncertainty:
“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.” http://en.wikipedia.org/wiki/Knightian_uncertainty
Risk is measurable: i.e. there is a 20% risk that this is going to fail
Uncertainty is not: I have no idea where this cave goes
I enjoy that he makes me think of the two terms as the totally distinct items they are. He then goes on to nail the point home by stating that the fact we can even measure risk makes it so radically different from uncertainty that we should question why we think of them in the same light at all.
I wanted to share this with you to encourage you to engage with your team and yourself to ask which of the two are you dealing with? With this enhanced vocabulary maybe we can all make better decisions.
Do you have any terms that people often think of as the same, but are not? (i.e. Complex and Complicated is another favorite of mine that people often confuse).