The methods for addressing risk differ from those used for uncertainty. Do you know which you're facing?
Many people use the terms "risk" and "uncertainty" interchangeably, suggesting that both indicate a significant chance of failure. While this isn't entirely wrong, it doesn't guide us in navigating through this danger of failure.
The primary distinction between risk and uncertainty lies in the amount of accessible information. In situations characterized by risk, we possess more data. The more information available, the more accurate our predictions can be. Risk can be measured and quantified, whereas uncertainty cannot. While risks have a specific range of outcomes with estimable odds, uncertainties are open-ended with multiple possibilities.
When dealing with risks, we can (and should) utilize probability methods to anticipate outcomes. For uncertainties, we can apply techniques from game theory and decision-making theory.
So, how do you determine what you're confronting?
I've crafted a simple quadrant diagram based on two criteria: Product Familiarity and the Ease of Market Research. Each criterion can range from "low" to "high." The quadrant you find yourself in dictates whether you're grappling with risk or uncertainty.
Product Familiarity reflects how well-acquainted the target audience is with such products. Note the distinction: it's not about the concept of the product but the product itself. For instance, while many might be familiar with the idea of space travel, the actual product – a commercial space journey – would be entirely new to the market. Brand-new products correlate with low familiarity, while well-known products indicate high familiarity.
Ease of Market Research denotes the effort required to gather sufficient market data and the feasibility of doing so. Easily researched markets might be identified by the availability to purchase market research, secure benchmarks, or access a wealth of online articles. A market easy to research corresponds to a high rating for this factor, whereas tough-to-research markets get a low rating.
Use the provided diagram to identify your position. I've provided descriptions for each quadrant in the first comment.