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Okay, let's have a look at
risk management in practice

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And what I want to do
is to start with some basic concepts

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then focus on two difficult areas
in the risk process

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So, I guess if I asked you
to define the word 'risk'

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you would have some ideas
of what it meant

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We might not have a formal definition
that we could quote,

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but we all have something in our minds
when we hear the word 'risk'

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This is what we think,
and maybe you think of things like this

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Maybe you feel like this little guy,
facing some big ugly challenge

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that you know is just going to
squash you flat.

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Maybe you feel like this guy.

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This is a real job in North Korea,

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and his job is to hold the target
for other people to shoot at

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Sometimes project managers
have the target here

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We feel like everybody is shooting at us
in our job

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Or maybe you just know there's something
nasty out there, waiting to get you

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And maybe that's what you think of
when you think of the word 'risk'

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Well that's partly true
but it's not the whole truth.

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Risk is not the same
as uncertainty.

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Risk is related to uncertainty
but they're different.

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So all risks are uncertain
but not all uncertainties are risks.

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If you have a risk register
or a risk list,

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you don't have a million items in it,
or you shouldn't.

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You don't even probably have
a thousand items in it,

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you have a smaller number.

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Although there are millions
of uncertainties in the world.

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So how do we decide which uncertainties
we're going to call 'risk'?

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And write them down 
and put them in our risk register

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and decide to do something about them.

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Clearly 'risk' is a subset
of uncertainties, but which subset?

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How do you know?

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I think it's very simple to separate
risk and uncertainty.

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And I used 3 English words,

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these words here,
'risk is uncertainty that matters."

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Because most of the
uncertainties in the world don't matter.

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We don't care if it's going to rain
in London tomorrow afternoon.

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It might, it might not,
it's irrelevant, it doesn't matter.

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We don't care what the 
exchange rate will be

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if it's between the Russian Ruble 
and the Chinese Yen in 2020.

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It doesn't matter to us.

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But there are things on our projects,

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and things in our families,

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and things in our country,

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which are uncertain which do matter to us.

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If it's an uncertainty that matters, 
it's a risk.

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So here's another question,
how do you know what matters?

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In your projects, 
what are the things that matter?

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The things that matter in our projects
are our objectives.

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So we must always connect uncertainty
with objectives,

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in order to find the risks.

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And if we look at 
some definitions of risk,

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this is the ISO standard that I mentioned,

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it connects those words very simply.

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Risk is the effect of uncertainty
on objectives.

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And we might look at another definition
from the UK,

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from our association 
with project management,

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it says the same thing that risk
is an uncertain event

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or a set of circumstances, 
which is uncertain,

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but it matters because should it occur,

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it will have an effect on achievement of objectives.

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Uncertainty that matters.

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So we should be looking 
in our risk register for two things.

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Is it uncertain? We don't want 
problems in our risk register.

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We don't want issues in the risk register.

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We don't want constraints or requirements.

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These things are certain,
what we want are uncertainties,

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something that might happen
or might not happen.

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But the other important question for our
risk register is

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does it matter?

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Which objective would be effective 
if this thing happened?

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And then when we want to see
how big the risk is,

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we can ask those two questions:

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how uncertain is it,

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and how much does it matter?

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And that will tell us how big the risk is.

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So, this idea of uncertainty that matters

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then develops into something which is useful

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by linking uncertainty to our objectives.

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So, we have two dimensions of ‘risk,’

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we have an uncertainty dimension and we

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have a dimension that 
affects our objectives

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In projects, we call
this probability and impact,

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We could call them other things,

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there are other English

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words we could use,
but these

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are the ones,
most often, we use.

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And I would like to ask you with 
this picture of the mouse.

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What effect matters to the mouse?

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So first of all, clearly, 
he is in a uncertain situation here.

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And he's seen some risks.

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His objective is to get the cheese
and stay alive.

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And so, one of the risks he has 
identified is a bad thing

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that might happen,
he might be killed or injured.

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And so, he has been a 
good project manager,

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he has put his little helmet on, 
and he is preparing

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so that it doesn't happen to him.
So, he doesn't get killed or injured.

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Very good.

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And there are things in our projects, 
that if they happened

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would kill or injure us.

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They would waste time,

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waste money, damage reputation,

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destroy performance,

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maybe even injure real people.

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And as project managers we have to
see those things and stop them happening.

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Protect ourselves in advance.

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Avoid them.

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Are there any other uncertainties
that matter for the mouse?

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Well there is...

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the cheese.

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There's an uncertainty here which 
matters a great deal.

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Will I get the cheese out of the trap?

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He might, or he might not.

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And if he doesn't get the 
cheese out of the trap, he's failed

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So he has two uncertainties to manage,

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one of them is bad - he might be killed
or injured -

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the other is good - he might 
get the cheese.

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And what he has to do,

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what he has to do is to manage both
of these at the same time.

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And as project managers, we have to
do the same thing.

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And also we have to do it in the
best possible way -

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sometimes there's a better way to get the 
cheese without being killed or injured.

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In our projects we have to stop the 
bad things happening,

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but we also have to get the cheese out
of our projects.

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So what does 'cheese' mean,
in your project?

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What is the 'cheese' in your project?

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'Cheese' means value.

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'Cheese' means benefits.

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'Cheese' means products and 
services that people want and need.

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'Cheese' means customer satisfaction.

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'Cheese' is the good stuff that we're 
trying to get out of our difficult projects.

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And if we don't do anything bad -

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we don't waste time, we don't 
waste money, we don't damage reputation -

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but we don't create value,

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we've failed.

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If the mouse didn't die but he didn't 
get the cheese, he failed.

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If we create benefits, but we waste time 
and waste money and destroy reputation,

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we've failed.

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And if the mouse gets the cheese
and he's killed,

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he's failed.

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So we have to do both of these things.

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And when we think about risk 
and think about impact,

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there are two kinds of impact that matter.

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Bad ones, and good ones.

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Uncertainties that could hurt the project,

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and uncertainties that 
could help the project.

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Both of these matter 
and both of these need to be managed.

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And we have another word for those.

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So, here's the definition of risk from the
Project Management Institute, the PMI,

149
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from the PMBok Guide.

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It's the same as the others 
that we've seen:

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an uncertain event or condition, 
that if it occurs, affects an objective.

152
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But PMI knows about the mouse. PMI knows 
about the cheese and the traps,

153
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and has added three words 
to the definition of risk here.

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It's not the words 'cheese' and 'traps'.

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It's the words 'positive or negative'.

156
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What this tells us is that there 
are good risks, as well as bad risks.

157
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And we heard that in one of our 
keynote speeches, earlier this morning.

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In the uncertain situation that this 
country faces going forward

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with all the changes that their have been,
there are threats.

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There are things that could go wrong.

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And you need to see those
and address them.

162
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But there are also opportunities.

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Uncertain things that might happen
that could be good.

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And we also need to see those things,

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and to try and proactively 
make them happen.

166
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And that is equally true in our projects,

167
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in our personal lives,

168
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and also at the national level.

169
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And I'll be talking about some of 
those things later on this afternoon

170
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So, PMI has this definition. The other 
standards have something very similar.

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The iso standard, at the bottom here,

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says 'risk is the effect of
uncertainty on objectives.'

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Note, the effect can be 
positive or negative.

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And the APM Association, for project 
management in the UK says the same thing.

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So we have this new idea,
that risk is a double-sided concept.

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And it's the same impression,
the word you have for risk,

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we mostly think of bad things.
But it could be used for good things,

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as well. Isn't that right?

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It's an uncertain word.