Project Risks on the PMP Exam: Variability Risk vs Ambiguity Risk

Risk management is a big part of the Project Management Professional (PMP)® exam. To prepare, you’ll need to understand the types of risks that influence your project. All these uncertain events and their impacts are called project risks. This article will look at four different types of project risks. 

On this page:

• What is Risk?
• Certainty and Uncertainty with Risks
• Four Types of Project Risk
• Variability vs Ambiguity
• Event Risk vs Emergent Risk
• Identify and Prioritize Risks
• Develop and Implement Proactive Responses
• Summary

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What is Risk?

According to the Project Management Institute (PMI), a risk is an uncertain event that happens during a project. Risk doesn’t always have to be a bad thing. Sometimes, risk can be a good thing! You can take advantage of risk. A risk might give you new opportunities. How you respond to risk is just as important as planning for it.

Certainty and Uncertainty with Risks

All risks are uncertain, but some risks are more uncertain than others. Project Management Institute (PMI) classifies risks into four different types. Two are event risks, the others are non-event risks. Risks that you can predict will have a more certain outcome. Risks you can’t predict will have a more uncertain outcome. Managing a project well means planning for the things you can plan for. But what about things you can’t plan for? There are still ways to make sure they don’t make too big of an impact on your project.

Four Types of Project Risk

The four types of project risk you see in a project are:

• Event risk
• Variability risk
• Ambiguity risk
• Emergent risk

Event Risk for the PMP Exam

Definition: An event risk is a risk that will affect the project’s objectives. Most of the risks associated with a project are event risks.

Impact: Event risks are tied closely to the project. They can drag out the project or affect the budget. Luckily, event risks are generally predictable. So, there are ways to reduce their impact.

Example: Some examples of event risks include:

• A supplier is going out of business
• A stakeholder might request a significant change in the project
• A new government regulation goes into effect
• Someone on the team leaves the organization
• A rainstorm occurs during a planned outdoor event

Variability Risk for the PMP Exam

Definition: Variability risks come from the unknown variables of managing a project. Like event risks, they affect the project’s objectives. Another way to think of variability risk is the difference between project expectations and reality.

Impact: Variability risk could lead to wrong or bad decisions. You could also miss specific opportunities. This makes the project more expensive than initially planned.

Example: Some examples of variability risk include:

• Out-of-the-ordinary weather conditions – the rainstorm is the event risk, but rain turning into sleet or hail is the variability risk
• Team productivity is higher or lower than expected – the productivity level is the uncertain variable
• Errors during testing are higher or lower than expected – the number of errors is the variable here
• Currency exchange rates fluctuate outside of the normal range – how much the rates change is the variable

Ambiguity Risk for the PMP

Definition: Ambiguity risks are uncertainties that might happen as the project unfolds. Event and variability risks are things you can try to predict at the beginning of a project. But ambiguity risks come up after the project gets going. This type of risk comes from an unforeseen circumstance.

Impact: Ambiguity risk can slow or completely shut down a project. You might lose a strategic advantage or spend more time making up for a knowledge gap. Or, if the gap is too large, the project could be shut down prematurely.

Example: Some examples of ambiguity risks include:

• Complexities within the project that might cause problems in the future
• Needing a crucial part and not knowing you needed it
• Using new technology that you’ll have to troubleshoot

Emergent Risk for the PMP

Definition: Emergent risks are unpredictable events. We can’t predict them because they are outside of our expertise. Moreover, we don’t even know we should be looking for them.

Impact: When emergent risks happen, they can completely derail a project. You could end up not having anything to deliver to the stakeholders. Sometimes, even the entire organization is affected.

Example: Emergent risks include anything outside our experience. For example, the COVID-19 pandemic forced organizations to change operations and disrupted supply chains globally. No one saw it coming because it’s not something we’ve seen or experienced in the last 100 years.

Variability Risk vs Ambiguity Risk for the PMP

Both variability and ambiguity risks are non-event risks. Non-event risk means that uncertainty comes from the project itself. For example, with variability risk, there is a number of outcomes, but we don’t know which one will happen. On the other hand, ambiguity risk is uncertainty resulting from a lack of knowledge or understanding. 

Similarities and Differences

While they may seem similar, you’ll need to know the similarities and differences between variability risk and ambiguity risk for the PMP exam. Variability risks are the variables within an event risk that are uncertain. On the other hand, ambiguity risks come from what you don’t know.

Let’s look at an example. Could you accurately predict the productivity level of a team? You can try, but it’s impossible to know exactly how productive a group of people will be. As a project manager, how much work your team does is the variability risk. Sometimes, bad days just happen. However, if the team isn’t productive because of a new program that constantly needs troubleshooting, then this added layer of uncertainty is ambiguity risk.

Variability Risk Pros & Cons

Variability risk pros include:

• Predictability – variability risks are more predictable than other types of risks
• You can create a contingency plan or set aside funds or time
• You can analyze it using models like the Monte Carlo simulation

Variability risk cons include:

• You have no control over these changing variables in the project
• The project can be derailed if you don’t have the resources to cope with this type of risk
• Variability risk is higher if you aren’t continuously improving estimation processes

Ambiguity Risk Pros & Cons

Ambiguity risk pros include:

• You can decrease this type of risk by identifying where your knowledge gaps are
• They are more predictable if you closely monitor your project as it progresses
• You can fill your knowledge gaps once you identify what they are

Ambiguity risk cons include:

• This type of risk wastes a lot of time and resources if you’re not paying attention
• Filling the knowledge gap may require hiring a third party and spending more money
• You might miss ambiguity risks if you’re using the wrong analysis tool

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Event Risk vs. Emergent Risk for the PMP

Event and emergent risks are both event risks, meaning they are things that happen to the project. Variables within the project do not cause them.

Similarities and Differences

Event and emergent risks are similar because outside forces affect the project. Their differences lie in their certainty and predictability. Event risks are predictable. You can probably make a list of them during the project planning phase. On the other hand, emergent risks are things that would never cross your mind. After all, how can you plan for something you don’t even know exists?

Event Risk Pros & Cons

Event risk pros include:

• These are common risks associated with a project
  • You can mitigate, transfer, accept, or avoid event risks
  • Putting aside extra resources or giving yourself a time buffer can go a long way to lessen the effects of event risks

Event risk cons include:

• Event risks can delay the project or shift the schedule
  • You may lose opportunities if event risks happen
  • Requires strategic planning and constant monitoring

Emergent Risk Pros & Cons

Emergent risk pros include:

• There’s no way to predict or plan for emergent risks
  • Having solid project management processes can help minimize the effects of emergent risks
  • You won’t know an emergent risk occurred until after it happens

Emergent risk cons include:

• There’s no way to predict or plan for emergent risks
  • If there are flaws in the organization or project plan, emergent risks might lead to project failure
  • You won’t know an emergent risk occurred until after it happens

Identify and Prioritize Risks

Risk management isn’t a one-and-done deal. A good project manager looks for risks all the time. Key milestones are a good time to recheck for new risks. It’s true that you can take note of risks at the beginning of the project. But don’t forget that new risks will always pop up. Sometimes, the probability of one risk will go up and another will go down. Project risks are always changing, so they need to be monitored regularly.

Develop and Implement Proactive Responses

Each type of risk requires a different response. To plan for negative event risks, there are different things you could do, such as:

• Bring in a third party
• Put aside extra funds
• Transfer the risk
• Mitigate the risk

Variability risks are bound to happen. You can prevent and plan for these risks by creating better estimates. For example, a software program your team is building might have around 50 errors. Don’t just stop there with your estimate! Try running scenarios where there are 100 errors or none. How might that change your plan?

Ambiguity risks happen as the project unfolds. Using agile project management methods lets you adapt to changes as needed. This methodology lets you quickly and easily change directions if needed. Plus, it lets you and your team be more adaptable to risks.

Finally, emergent risks are the most significant uncertainties. For one, you can’t plan for them. No one knew that a pandemic was coming in 2020, and the results of that pandemic were even more unpredictable. But flexible and resourceful companies found ways to make it work. The ones that were too rigid struggled.

Summary

Understanding the four types of risks is necessary to pass the PMP exam. First, you’ll need to know the differences between variability risk and ambiguity risk. Additionally, knowing which types of risks are event versus non-event risks will help you distinguish one risk from another. Finally, know which risks are preventable and what to do about them.

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