Management of risks, uncertainties and opportunities on projects: time for a fundamental shift Ali Jaafari Department of Civil Engineering, The University of Sydney, NSW 2006, Australia Received 26 October 1998; received in revised form 16 June 1999; accepted 30 June 1999 Abstract This paper makes a case for a shift to strategy-based project management, a component of which is real time management of risks, uncertainties and opportunities using a life cycle project management approach. Risk analysis and management should not be viewed as a separate planning and response operation. Risk and opportunity management is a way of thinking and a philosophy that should permeate the entire spectrum of project activities. Shifting to business objectives and focusing on the whole of life risks/ rewards are of paramount importance. Evaluation of risks must be based not only on delivering projects on time and within budget but also on crafting, developing and operating a long term business entity which can deliver the business objectives of the parties concerned while meeting or exceeding community expectations. # 2001 Elsevier Science Ltd and IPMA. All rights reserved. Keywords: Strategy; Project management; Life cycle; Decision making 1. Risk and uncertainty de®nition Risk is de®ned as the exposure to loss/gain, or the probability of occurrence of loss/gain multiplied by its respective magnitude. Events are said to be certain if the probability of their occurrence is 100% or totally uncertain if the probability of occurrence is 0%. In between these extremes the uncertainty varies quite widely. On projects it is necessary to de®ne one or a number of objective functions to represent the project under consideration and then measure the likelihood of achieving certain target values for them. Examples of such functions include capital expenditure, completion time and so on. Risk management involves modelling the project's objective functions against project vari- ables, which include such variables as cost and quan- tities of input resources, external factors, etc. Since the project variables are often stochastic in nature and dynamic (i.e. exhibiting varying degrees of uncertainty over time) it is quite natural that the objective functions will also exhibit uncertainty. Project uncertainty is the probability that the objective function will not reach its planned target value. If the project variables could be identi®ed and char- acterised well in advance and provided that these were to remain basically unchanged during the currency of the project then it would be possible to estimate the risks and or variances of the objective functions. How- ever, not all of the project variables are always identi®- able at the outset or new variables surface during project life or their probability of occurrence may shift over time. Their impacts (both positive and negative) could also change as would their inter-relationships. These will then make the task of risk management extremely dicult. The ideal situation is to have a single measure repre- senting the project uncertainty (Fig. 1). For example, the probability that the project will not break even could be considered to be representative of the whole project uncertainty. This can then be evaluated against the project variables and used as the basis for decision making and risk reduction throughout project life. On projects proceeding normally within a stable environ- ment, uncertainty will typically be high at the time of project conceptualisation and will be increasingly low- ered via proactive planning and prudent decision mak- ing. However, on complex projects within a changing environment, uncertainty will not necessarily diminish over time [1]. Thus, it will be necessary to continuously 0263-7863/01/$20.00 # 2001 Elsevier Science Ltd and IPMA. All rights reserved. PII: S0263-7863(99)00047-2 International Journal of Project Management 19 (2001) 89±101 www.elsevier.com/locate/ijproman E-mail address: a.jaafari@civil.usyd.edu.au (A. Jaafari).