Many equate risk with probability, so they drop opportunity from the label. They think of risk as an abbreviation for risk and opportunity. Others worry, then, that opportunity will be forgotten -- as it usually is!
When one speaks of risk [and opportunity], one speaks of the probability that something will happen. That is,
Risk = Probability x Impact, where Impact is a loss
Opportunity = Probability x Impact, where Impact is a gain
If risks and opportunities are rays pointing left and right, then opportunities are negative risks. If you deal with them in the same matrix, pay extra attention to your negative signs.
Risk and opportunity management can result in influencing the probability, influencing the impact, or other strategies such as accepting a potential loss or waiting to deal with situations when and if they become an issues.
(Remember that a situation is a risk if the probability lies between zero and one. A situation is an issue if the probability is one.)
Uncertainty ManagementCould we simply call it Uncertainty Management? Uncertainty would only deal with influencing the probability that something will occur. The face-value of the term fails to imply the other strategies for dealing with risks or opportunities. The name of this knowledge area should reflect the highest-level concepts, not a component concept.
Opportunities and ThreatsAnother pairing of terms comes from SWOT analysis - Strengths, Weaknesses, Opportunities, and Threats. SWOT analysis is one technique for identifying risks and opportunities.
Opportunities and threats, as a pair, emphasizes the influences or situations that affect or can be affected by a person or project. (In fact, threat implies that the risk event comes from outside, whereas risks can be either internal or external.) SWOT analysis emphasizes identification of risks. It makes up only a fraction of the whole set of risk and opportunity management processes.
A Common Risk: Failing to Deal with OpportunitiesMany people forget to manage opportunities with the same vigor that they apply to managing risks. Exploiting opportunities can mitigate the potential impact of risks. The reasoning goes, Risk A may set us back a week, but Opportunity B may save us a week.
PMs have other reasons to exploit opportunities. Exploited opportunities cut costs, relieve schedule pressure, and improve quality. In short, they maximize profit.
Failure to exploit opportunities wastes resources, causes product lines to stagnate, erodes market share, and results in lost jobs (perhaps your job!) when the company withers.
The failure to exploit opportunities is itself a fundamental risk.
Therefore, referring to the practice as Risk and Opportunity Management calls attention to the oft-forgotten second half of the discipline.
Remember that semantics is about communicating, not about winning arguments. If somebody refers to risk management, you know what they mean. Adjust.
Copyright 2011, 2013, Richard Wheeler -- Permission granted for non-profit or personal use with a link to this post.
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