Risk vs. Uncertainty: Why the Distinction Matters for Strategic Decision-Making

Not all risks are created equal, and not all are even risks.

In a recent LinkedIn poll, I asked professionals which challenge they found most difficult to manage: quantifiable risks, emerging risks, strategic uncertainty, or cultural blind spots. Out of 101 responses, only 7 percent chose quantifiable risks. The rest pointed to more complex issues. Strategic uncertainty received 34 percent of the vote, cultural blind spots 33 percent, and emerging risks 27 percent.

These results reveal a meaningful shift in how risk is understood. The hardest problems are not those we can model or measure. They are the ones shaped by ambiguity, evolving dynamics, and organisational behaviour.

When we treat all uncertainty as if it were measurable risk, we invite blind spots. We rely too heavily on models, overlook weak signals, and create cultures where challenge is suppressed. This confusion undermines decision-making and makes it harder to respond when conditions change.

This article examines the difference between risk and uncertainty, why the distinction matters, and what leaders and risk professionals can do to respond more effectively in complex environments.

Risk vs. Uncertainty: Definitions and Key Concepts

The distinction between risk and uncertainty is not new. It was formally articulated by economist Frank Knight in Risk, Uncertainty and Profit (1921), a foundational work that remains relevant over a century later. Knight argued that risk refers to situations involving future events where the potential outcomes are unknown but the probabilities can be estimated. Uncertainty, on the other hand, applies to situations where even the probabilities are unclear or unknowable.

Risk is typically associated with measurable variation. It involves future events where data is available, patterns can be observed, and potential outcomes can be modelled with some degree of statistical confidence. Tools like Value at Risk (VaR), Monte Carlo simulations, and scenario analysis all rely on the assumption that probabilities can be assigned to different outcomes.

In this context, risk is something that can be managed. The traditional methods, such as mitigation, transfer, avoidance, and acceptance, provide a structured approach to reducing impact or likelihood. A well-designed risk assessment process depends on the ability to estimate the likelihood and impact of these potential outcomes. These methods work well when the risk landscape is stable, and when cause and effect are understood.

Uncertainty refers to situations where information is incomplete, ambiguous, or rapidly evolving, and where assigning reliable probabilities to future events is not possible. There may be signals, but no clear pattern. Outcomes may depend on complex or novel factors that do not lend themselves to historical analysis. Examples include disruptive technologies, sudden regulatory shifts, geopolitical instability, and cultural transformation. These forces shape the future in ways that resist calculation.

Because uncertainty cannot be easily quantified, it cannot be managed through conventional risk frameworks. It requires different approaches: ones that emphasise resilience, adaptability, and judgment. Techniques such as red teaming, pre-mortems, horizon scanning, and structured dissent are often more useful than statistical models. These tools do not predict the future. They prepare people and systems to respond when the future does not unfold as expected.

Understanding this difference is critical. When uncertainty is treated as if it were risk, organisations tend to overestimate the value of their models and underestimate the importance of cultural awareness, leadership foresight, and behavioural insight.

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When Risk Thinking Fails: What Uncertainty Teaches Us

Understanding the difference between risk and uncertainty has real implications for how organisations govern, plan, and respond.

Risk lends itself to control. Uncertainty demands adaptability.

When risk is properly defined, it becomes part of a managed system. Controls are applied. Ownership is assigned. Impact is modelled, and decisions are made with an understanding of likely trade-offs. This structured approach allows for consistency and comparability, especially in regulated environments where capital, conduct, and compliance are all evaluated through a risk-based lens.

Uncertainty does not offer the same predictability and can typically lead to non-linear outcomes . It arises in areas where the rules are changing, where the data is incomplete, or where future states cannot be reliably modelled. When organisations attempt to treat uncertainty in the same way as quantifiable risk, they often become overconfident in their preparedness. This is where many failures begin. Loss can build-up very fast.

Historical examples reveal this pattern. In the years leading up to the 2008 financial crisis, institutions relied heavily on models that assumed market behaviour would remain within historical norms. Those models failed to account for the systemic uncertainty introduced by complex derivatives, shadow banking, and weak regulatory alignment. The assumptions were framed as risks. In reality, they were unknowable outcomes masked by false precision.

Strategic missteps also follow this pattern. Companies may enter new markets, invest in emerging technologies, or pursue aggressive growth based on data that appears solid but does not reflect the uncertainty of consumer behaviour, regulatory shifts, or global events. When plans are built around what can be measured, they often neglect what needs to be explored.

Regulators have started to respond. Across financial services, there is growing recognition that uncertainty must be addressed more directly. Supervisory expectations now include horizon scanning, emerging risk registers, and the use of scenario testing not only for risk-based capital planning but for resilience and governance. The shift is subtle but significant: it asks risk leaders to design systems that can adapt to the unknown, not just control the known.

This requires more than technical expertise. It calls for cultural awareness, leadership maturity, and cross-functional alignment. As explored in Cultural Intelligence in Risk, context and diversity significantly influence how risks are interpreted under conditions of uncertainty. Cultural intelligence becomes a critical enabler in recognising blind spots, questioning assumptions, and adapting frameworks to real-world complexity. It is no longer enough to ask whether a risk can be measured. The more important question may be whether it is being misunderstood.

Leading Through the Fog: Implications for Risk Professionals and Decision-Makers

The distinction between risk and uncertainty has deep consequences for how decisions are made. Risk allows for decisions based on data, probability, and predefined responses. Uncertainty requires judgment, adaptability, and often the courage to act without full information.

For leaders and risk professionals, this difference changes everything.

Traditional decision-making processes often assume that future outcomes can be predicted or at least bounded. This works when the variables are known, and the environment is stable. Under uncertainty, those assumptions no longer hold. New dynamics emerge. Old patterns break down. There is no reliable model to fall back on.

In these moments, human behaviour takes centre stage. Overconfidence bias can lead leaders to underestimate the volatility of a situation. The illusion of control creates a false sense of preparedness. Aversion to ambiguity causes organisations to delay decisions or cling to outdated models rather than admit what they do not know. These behavioural patterns are not just individual traits.

They are cultural forces that shape how an entire organisation perceives risk.

I explored this further in The Human Factor in Risk Management, which examined how trust, empowerment, and behavioural dynamics shape risk visibility and response.

Risk appetite frameworks are often built around measurable categories, mapped to impact thresholds and control tolerances. But uncertainty resists categorisation. It challenges the idea that all threats can be neatly scored or tiered. This creates a disconnect between how organisations define risk appetite and how they respond to unfamiliar situations. It also puts pressure on risk culture, especially if team members fear speaking up about concerns that fall outside the usual definitions.

To lead effectively in uncertain conditions, risk professionals need more than analytical skill. They must create environments where it is safe to challenge assumptions, where weak signals are not ignored, and where exploration is valued as much as control. This is not just a technical shift. It is a leadership requirement.

Understanding how risk and uncertainty shape behaviour, culture, and decision-making is no longer optional. It is a core capability for any organisation seeking to navigate complexity with integrity and foresight.

These behaviours are not built by accident. They reflect an intentional effort to bridge the gap between the measurable and the unknowable.

This theme was explored in depth during my recent interview with futurist and strategist Roger Spitz on the RiskMasters podcast. We discussed how leaders can navigate complexity by designing for uncertainty rather than trying to eliminate it. His insights on strategic foresight and the limits of predictive thinking underscore the need for organisations to become more anticipatory, not just reactive.

📘 Listen to the full conversation here: Part 1 – Risk, Foresight, and Disruption

Part 2 – Leading Through Uncertainty

Leading Through the Unknown

When risk can be measured, leadership can lean on frameworks, policies, and historical precedent. But in the face of uncertainty, those tools often lose their footing. What remains is judgement, values, and the ability to foster environments where challenge and creativity are encouraged.

Leadership under uncertainty is not about having the right answers. It is about creating the conditions where better questions can be asked. In uncertain environments, teams look to their leaders for cues: how to respond, when to speak up, and whether it is safe to acknowledge what is not yet clear. If the tone signals discomfort with ambiguity, or intolerance for dissent, uncertainty becomes a breeding ground for silence and stagnation.

This is where psychological safety becomes essential. It is not a cultural luxury. It is a core requirement for navigating complexity. In environments where uncertainty is present, people need to feel safe to share observations, challenge dominant narratives, and propose unconventional solutions. Without that space, early signals are missed, emerging threats remain hidden, and resilience becomes a matter of luck rather than design.

📘 Risk Within provides a roadmap for embedding psychological safety into risk management. It identifies critical touch points across the risk lifecycle and offers clear actions to align leadership, culture, and governance. It is designed to help risk functions integrate more deeply into the business and strengthen decision-making at every level. 

Risk Identification: Surfacing

These dynamics are explored in From a Culture of Whispers to a Speak-Up Culture, which looks at how silence in governance can signal deeper cultural fragility.

The organisations that manage uncertainty most effectively do not wait for clarity. They act in ways that build optionality. They experiment, listen widely, and adapt quickly. These behaviours are often cultural before they become operational. They reflect a mindset that values curiosity over control and learning over perfection.

As Roger Spitz shared in our RiskMasters interview,

The real risk is assuming we can predict the future with precision.

Leaders today must think more like system designers than forecasters. Their role is not to impose certainty, but to build the adaptive capacity that allows the organisation to move with confidence through the unknown.

This shift in leadership is not about reducing accountability. It is about expanding awareness. The unknown will always be part of the risk landscape. The question is whether leaders are prepared to embrace it, or whether they will continue to treat uncertainty as a flaw in their models rather than a feature of reality.

Conclusion: From Knowing to Navigating

The distinction between risk and uncertainty is more than semantic. It reshapes how we prepare, how we lead, and how we respond when the environment shifts in ways we did not expect.

Risk invites control. It lends itself to rules, thresholds, and response plans. Uncertainty requires something else. It demands awareness, adaptability, and a willingness to recognise that what matters most is not always measurable. In Risk Perception, I explored how personal and organisational filters shape our understanding of what deserves attention, a key consideration when dealing with uncertainty.

The organisations that thrive in uncertain conditions are not the ones that try to eliminate ambiguity. They are the ones that recognise it, talk about it, and build systems that can flex under pressure. This shift is not driven by tools alone. It is shaped by culture, led by example, and reinforced by everyday decisions.

For risk professionals, the challenge is to expand the boundaries of traditional frameworks without losing their structure. For leaders, the challenge is to foster the kind of environment where uncertainty is not a threat to control but an invitation to learn.

The future may not be predictable, but it can still be navigated, if uncertainty is approached with respect, rather than resistance.

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FAQs: Understanding Risk vs. Uncertainty

1. What is the difference between risk and uncertainty?

Risk refers to situations where the outcome is unknown but the probabilities can be estimated. Uncertainty involves situations where even the probabilities are unclear or unknowable. Risk can be measured and managed with tools and models, while uncertainty requires judgment, adaptability, and strategic foresight.

2. Why is distinguishing between risk and uncertainty important in business?

Treating uncertainty as if it were measurable risk can lead to overconfidence, blind spots, and poor decision-making. Recognising the difference enables leaders to prepare for disruption, challenge assumptions, and build systems that adapt to change rather than just control known threats.

3. How can organisations manage uncertainty effectively?

Uncertainty cannot be controlled using traditional risk models. Instead, organisations can use techniques such as horizon scanning, red teaming, pre-mortems, and scenario planning to build awareness and adaptive capacity. Psychological safety and cultural intelligence are also essential to encourage open dialogue and early warning.

4. What are examples of uncertainty in business?

Examples include disruptive technologies, sudden regulatory changes, geopolitical events, and cultural shifts. These are areas where historical data offers little guidance, and where emerging signals may be weak or ambiguous.

5. How does uncertainty affect risk appetite frameworks?

Most risk appetite frameworks are built around measurable categories and thresholds. Uncertainty challenges these assumptions, often falling outside traditional scoring methods. This can create gaps in governance unless frameworks are expanded to include ambiguous, emerging, or complex risks.

6. What role does leadership play in navigating uncertainty?

Effective leadership under uncertainty is about fostering environments where people feel safe to raise concerns, challenge assumptions, and explore unknowns. Leaders must value curiosity over control and build cultures that support both foresight and flexibility.