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Uncertainty, Risk and Opportunities

In: Early Project Appraisal

Author

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  • Knut Samset

Abstract

Risk customarily is defined as the product of the probability that an uncertain event will occur, and its consequence, that is, the potential effect of the event. Probability is commonly stated in percentages, so that 0.1 is a probability of 10 per cent that an event occurs and 1.0 indicates certainty of occurrence. Consequence may be expressed in monetary units, so risk, then, expresses expected value. It also may be expressed in other units, such as number of people killed or injured. Both risk and consequence may be precisely stated in quantitative terms by the ratio level, be graded at the ordinal level or possibly expressed qualitatively at the nominal level. For example, the comparison may be between two events, one of which not very likely but has major consequences, while the other is highly probable but has small consequences. This way of expressing risk comprises a simple, useful aid for comparing the significance of various events or decisions.

Suggested Citation

  • Knut Samset, 2010. "Uncertainty, Risk and Opportunities," Palgrave Macmillan Books, in: Early Project Appraisal, chapter 5, pages 38-50, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-28992-5_5
    DOI: 10.1057/9780230289925_5
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