The Mechanics of Risk: Uncertainty, Possibility, & Probability
09 January 2019 on Insurance Education
Uncertainty is the first element of risk. There is no possible way to know what types of life outcomes will happen at any time — you could win an Oscar, get into Sundance, or land a huge client — or you could also get in a car crash, break an antique lens or lose an important cast member. There is simply no way to know, and to make things more complex, not only can you not know what will happen, but you also can’t know when something will happen.
The second element of risk is the possibility of something bad happening. Just because something could happen, does not mean that it will or that it will be negative. However, it is possible for someone on your set to get injured while loading a grip truck, moving props or building a set.
These two dynamics, uncertainty and possibility, are what make risk exist because no one can predict the future — unless you’re Biff in Back to the Future II.
So, with a mixture of not knowing the possibilities of negative outcomes that could happen and the uncertainty of what will happen or when; it’s important to cultivate an understanding of how to manage the possibility of downside risk by relating these types of outcomes to probability.
The possibility of something happening is unquantifiable. All that the possibility of an outcome can teach us is that negative risk occurrences are always present. So, to better manage these dynamics, risk management leans on the probability of outcomes happening. This is important because the probability of a possible outcome is measurable — it has a numerical probability of occurring somewhere between zero and one.
To make sense of this, consider that if an event is not possible (like literally going Back To The Future) it has the value of zero. However, if an event is at all possible it has a value somewhere between zero and one. This means that risk management, using probability, can identify not just possible outcomes but quantify the outcomes of some downside risk so that risks can be managed and decisions with a high probability of negative outcomes can be avoided.
Here is an example:
If the probability of an Alexa Mini and anamorphic lenses being stolen from your grip truck is 15% and the probability of the Alexa Mini and anamorphic lenses being stolen from a garage is 5%, you may decide to bring the camera and lenses into the garage.
Coming to terms with the fact that some negative risks can be quantified with probability means that the decisions you make at your studio, on your film set or in your organization can be optimized to reduce your losses and set you up for maximizing positive outcomes. The importance of risk management is outlined in our post, Understanding the Importance of Risk Management in Film and Entertainment Organizations.