QUESTION 2.2

What is the difference between risk and uncertainty? How can you identify and differentiate between

them in the following case?

a) ABC Grocery and Supermarket Outlets plans to automate its warehouse by installing a computer-

controlled order-packing system and a conveyor system for moving goods from storage to the

warehouse shipping area.

SOLUTION

RISK: Risk is a measure of “Possibility of Loss” of life or injury and occurrence of dangerous element due

to natural or human activities. Risk or potential loss is associated with exposure of the recipients to hazard

and its consequences such as adverse health effects, loss of property, reconstruction costs, loss of

economic activity, environmental/natural damage or losses, etc. When we observe risk we observe

uncertainty about the possible outcome. Even if we are uncertain about the exact outcome, we can often

think of a range of possibilities that might occur. Risk arises from some of the uncertain outcomes being

less favourable than others. In general, this probability can be assessed for a risky event using qualitative

or quantitative methods. Risk can be identified using probability distribution function of the potential

outcome.

Risk analysis should be performed using system framework that need to account for:

- Uncertainties in modelling (system architecture) - Behavior (physical laws) - Prediction models - Interaction among a system’s components - Impacts on the system and its surrounding environment -

UNCERTAINTY: Uncertainty is something or an event that is uncertain, meaning that it is indefinite, not

reliable, unknown beyond doubt and not constant. In general, it is difficult to estimate a probability value

of occurrence of uncertain events. Uncertain means feeling doubt about things we carry out which make

us unconfident in predicting or describe something. Uncertain things tends to change frequently, which

has no historical data or previous history record make by decision maker on some situation. Uncertainty

is a situation that potential outcome cannot be described and identified using probability distribution.