Project Management

Dealing with Risk and Uncertainty 153

Using Ranged Values When Expressing Estimated Outcomes

The most explicit way of accommodating uncertainty is as
much of an issue of style as of mathematics. Whenever you’re
asked to provide an estimate for anything, project management
best practice dictates that you should express the estimate as a
range of possible outcomes, rather than one specific number.
Try it. The next time you prepare a cost estimate, for exam-
ple, tell your management this: “I can state to a 95% degree of
certainty that the project will cost between $100,000 and
$125,000.”
Then step back and wait for the reaction. It probably won’t
be favorable. Unfortunately, it should be, because you’ve pro-
vided some very valuable information. And you’ve done the
best you could, given the uncertainty you’re facing. The prob-
lem is that people are usually looking for a specific figure.
Unfortunately, you cannot—in good conscience—provide a spe-
cific figure. Do you remember that uncertainty is defined as an
absence of information, knowledge, or understanding regarding
the outcome of an action, decision, or event? Well, you’re likely

where

The formula often used in conjunction with the PERT diagramming

method (although it could be used at any time) is as follows:

O+4M+P

6

O = the optimistic estimate of task duration

M = the most likely estimate of task duration

P = the pessimistic estimate of task duration

Statistically, this formula "favors" the most likely, but allows for some

adjustment to accommodate extremes in minimum or maximum

outcome.

Optimistic Most Likely Pessimistic

Risk-Adjusted

Duration

5

8

16

7

17

17

15

20

30

8

16

19

Sample Calculations:

Figure 8-5. PERT technique for accommodating uncertainty