Why the Basic Axioms of Risk Assessment Can Be Problematic to Identify Risk? – The Development of the VUCA Meter

Review Article

Austin J Bus Adm Manage. 2023; 7(2): 1059.

Why the Basic Axioms of Risk Assessment Can Be Problematic to Identify Risk? – The Development of the VUCA Meter

Thordur Vikingur Fridgeirsson¹*; Helgi Thor Ingason²

¹Assistant Professor, Reykjavik University, Iceland

²Professor at Reykjavik University Reykjavík, Capital Region, Iceland

*Corresponding author: Thordur Vikingur Fridgeirsson Assistant Professor, Reykjavik University, Iceland. Email: [email protected]

Received: June 08, 2023 Accepted: June 30, 2023 Published: July 07, 2023


The VUCA world is the epitome of the challenges linked with some of the undercurrents currently shaping businesses in the projectified society. The terms Volatility, Uncertainty, Complexity and Ambiguity (VUCA) are used as descriptive for the continuous flux project managers and project planners are forced to keep at bay. In this article, the authors present an idea to connect the VUCA concept as a risk identification platform to access, identify and isolate low-probability but high-impact events often called black swans or fat tail events. It is argued that the assumptions of conventional risk assessment in the domain of project management can lead to skewed general outcomes due to limitations of the intellect to assess probability. The outline of the VUCA meter is drafted and argued that the meter can augment the conventional risk assessment approach.

Keywords: VUCA meter; Probability; Black swans; Risk management


In his much-applauded book “Against the Gods – The Remarkable Story of Risk” Peter L. Bernstein claims that risk management has existed for more than 2000 years as part of decision-making [7]. However, modern risk management only started after World War II 1[12]. The first academic book on risk management was published by Mehr and Hedges as late as 1963 [31]. Risk management commenced by being a financial instrument to hedge companies against fluctuations related to interest rates, stock market returns, exchange rates, and the prices of raw materials or commodities. Risk management has over the years evolved to be a corporate framework to handle risk and uncertainty. It entered the realm of project management in 1987 when PMI (Project Management Institute) added risk management section to the PMBOK guide [37]. Georges Dionne states that “In general, a pure risk is a combination of the probability or frequency of an event and its consequences, which is usually negative [12].” This definition of risk is complying with well-known classifications of what is a risk. Oxford English Dictionary defines risk as: “a chance or possibility of danger, loss, injury or other adverse consequences”. The ISO 31000 standard refers to risk as the “effect of uncertainty on objectives.” Institute of Risk Management (IRM) forwards this definition: “Risk is the combination of the probability of an event and its consequence.” HM Treasury in the UK refers to risk as: “uncertainty of outcome, within a range of exposure, arising from a combination of the impact and the probability of potential events.” Finally, from the Institute of Internal Auditors we have “risk is measured in terms of consequences and likelihood.”. [21] Brought together we can assume that a common formulation of risk is:

Risk is the combination of the probability of an event and its consequence. Risk = Likelihood of event × Impact of event.

Here we have an issue. If risk is a product of likelihood and impact, e.g. on a scale from 1-5, a risk matrix for some hypothetical project could look like shown in Figure 1.