Two Schools of Risk Analysis: A Review of past Research on Project Risk

Abstract

Risk research can be generally categorized into two schools: risk as an objective fact and risk as a subjective construction. Both schools have different risk definitions, epistemological dimensions, and analytical methods, and tend to recommend different policies for managing risks. This study aims to locate the position of past studies on project risk found between the two schools of risk analysis and to help understand their basic assumptions and viewpoints by reviewing articles published during the last 10 years in two project management journals: the International Journal of Project Management and Project Management Journal. There are 171 articles collected from both journals. They are categorized into four groups: project management system, subjective perception, irrational behavior in risk management, and subjective construction. This study describes and discusses the basic assumptions, viewpoints, and tendencies usually held by each group, and it indicates the position of each group found between the two schools. It also develops some discussion on the starting point of both schools of risk analysis and their significance in directing practices of project risk management.

Value of Uncertainty: The Lost Opportunities in Large Projects

“…Other scholars who have reviewed earlier research on project risk have discussed whether risk as a phenomenon essentially is objective or subjective [24] without drawing the historical lines back to the work by Knight and Keynes [27,28]. Zhang [24] categorizes his findings into two schools of thinking: "risk as an objective fact" and "risk as a subjective construction".…”

“…Since the 1990s, there has been an ongoing terminology debate in the project management community regarding whether the handling of uncertainty in a project should be labelled risk or uncertainty management [23,24] Some scholars have argued the case for the term uncertainty [19,25] while others have argued for risk [21]. Some consider uncertainty and risk as synonymous, and some consider them as separate terms with different interpretations.…”

“…Zhang [24] categorizes his findings into two schools of thinking: "risk as an objective fact" and "risk as a subjective construction". According to Zhang, the two schools have different definitions of risk and recommend different analytical methods and different policies for managing risks.…”

Comparison of Trends in Risk Management Theory and Practices Within the Construction Industry

“…Risk research can be generally categorized into two schools, namely, risk as an objective fact and risk as a subjective construction, and these categories differ in terms of risk definitions, methods of analysis, and recommended risk management [7]. The school of the objective approach defines objective existence of risks, which means they can be monitored and the observed, likelihood of their appearance and impact on project goals can be calculated using quantitative analysis methods.…”

“…The school of the subjective approach considers risk as a subjective construction, dependent on perception, context, and personal preferences of manager. Estimation of risk is based on the subjective opinion as opposed to objective information and it uses qualitative methods of analysis, where the starting point indicates sources of risk created as a personal judgment of the manager or stakeholders [7]. Traditional understanding of risk is a result of the objective approach in which a holistic understanding attempts to combine the best attributes from both schools.…”