What distinguishes 'risk' from 'uncertainty'?

The distinction between 'risk' and 'uncertainty' hinges on the ability to quantify potential outcomes. Risk involves situations where the probabilities of various outcomes can be calculated based on known variables and historical data. This means that one can gauge the likelihood of different events occurring and apply statistical measures, making it possible to assess potential losses or gains in a defined manner.

In contrast, uncertainty encompasses scenarios where the range of potential outcomes is unknown, and it is difficult or impossible to assign probabilities due to the complexity and unpredictability of the factors involved. Uncertainty includes many undefined variables and lacks the clear predictability that characterizes risk.

This understanding is crucial in risk management, as it informs the strategies used to mitigate potential losses. Recognizing how risk can be quantified allows organizations to make informed decisions, while acknowledging uncertainty requires different approaches since it can't be easily measured or predicted.