Okay, let's have a look at risk management in practice
And what I want to do is to start with some basic concepts
then focus on two difficult areas in the risk process
So, I guess if I asked you to define the word 'risk'
you would have some ideas of what it meant
We might not have a formal definition that we could quote,
but we all have something in our minds when we hear the word 'risk'
This is what we think, and maybe you think of things like this
Maybe you feel like this little guy, facing some big ugly challenge
that you know is just going to squash you flat.
Maybe you feel like this guy.
This is a real job in North Korea,
and his job is to hold the target for other people to shoot at
Sometimes project managers have the target here
We feel like everybody is shooting at us in our job
Or maybe you just know there's something nasty out there, waiting to get you
And maybe that's what you think of when you think of the word 'risk'
Well that's partly true but it's not the whole truth.
Risk is not the same as uncertainty.
Risk is related to uncertainty but they're different.
So all risks are uncertain but not all uncertainties are risks.
If you have a risk register or a risk list,
you don't have a million items in it, or you shouldn't.
You don't even probably have a thousand items in it,
you have a smaller number.
Although there are millions of uncertainties in the world.
So how do we decide which uncertainties we're going to call 'risk'?
And write them down and put them in our risk register
and decide to do something about them.
Clearly 'risk' is a subset of uncertainties, but which subset?
How do you know?
I think it's very simple to separate risk and uncertainty.
And I used 3 English words,
these words here, 'risk is uncertainty that matters."
Because most of the uncertainties in the world don't matter.
We don't care if it's going to rain in London tomorrow afternoon.
It might, it might not, it's irrelevant, it doesn't matter.
We don't care what the exchange rate will be
if it's between the Russian Ruble and the Chinese Yen in 2020.
It doesn't matter to us.
But there are things on our projects,
and things in our families,
and things in our country,
which are uncertain which do matter to us.
If it's an uncertainty that matters, it's a risk.
So here's another question, how do you know what matters?
In your projects, what are the things that matter?
The things that matter in our projects are our objectives.
So we must always connect uncertainty with objectives,
in order to find the risks.
And if we look at some definitions of risk,
this is the ISO standard that I mentioned,
it connects those words very simply.
Risk is the effect of uncertainty on objectives.
And we might look at another definition from the UK,
from our association with project management,
it says the same thing that risk is an uncertain event
or a set of circumstances, which is uncertain,
but it matters because should it occur,
it will have an effect on achievement of objectives.
Uncertainty that matters.
So we should be looking in our risk register for two things.
Is it uncertain? We don't want problems in our risk register.
We don't want issues in the risk register.
We don't want constraints or requirements.
These things are certain, what we want are uncertainties,
something that might happen or might not happen.
But the other important question for our risk register is
does it matter?
Which objective would be effective if this thing happened?
And then when we want to see how big the risk is,
we can ask those two questions:
how uncertain is it,
and how much does it matter?
And that will tell us how big the risk is.
So, this idea of uncertainty that matters
then develops into something which is useful
by linking uncertainty to our objectives.
So, we have two dimensions of ‘risk,’
we have an uncertainty dimension and we
have a dimension that affects our objectives
In projects, we call this probability and impact,
We could call them other things,
there are other English
words we could use, but these
are the ones, most often, we use.
And I would like to ask you with this picture of the mouse.
What effect matters to the mouse?
So first of all, clearly, he is in a uncertain situation here.
And he's seen some risks.
His objective is to get the cheese and stay alive.
And so, one of the risks he has identified is a bad thing
that might happen, he might be killed or injured.
And so, he has been a good project manager,
he has put his little helmet on, and he is preparing
so that it doesn't happen to him. So, he doesn't get killed or injured.
Very good.
And there are things in our projects, that if they happened
would kill or injure us.
They would waste time,
waste money, damage reputation,
destroy performance,
maybe even injure real people.
And as project managers we have to see those things and stop them happening.
Protect ourselves in advance.
Avoid them.
Are there any other uncertainties that matter for the mouse?
Well there is...
the cheese.
There's an uncertainty here which matters a great deal.
Will I get the cheese out of the trap?
He might, or he might not.
And if he doesn't get the cheese out of the trap, he's failed
So he has two uncertainties to manage,
one of them is bad - he might be killed or injured -
the other is good - he might get the cheese.
And what he has to do,
what he has to do is to manage both of these at the same time.
And as project managers, we have to do the same thing.
And also we have to do it in the best possible way -
sometimes there's a better way to get the cheese without being killed or injured.
In our projects we have to stop the bad things happening,
but we also have to get the cheese out of our projects.
So what does 'cheese' mean, in your project?
What is the 'cheese' in your project?
'Cheese' means value.
'Cheese' means benefits.
'Cheese' means products and services that people want and need.
'Cheese' means customer satisfaction.
'Cheese' is the good stuff that we're trying to get out of our difficult projects.
And if we don't do anything bad -
we don't waste time, we don't waste money, we don't damage reputation -
but we don't create value,
we've failed.
If the mouse didn't die but he didn't get the cheese, he failed.
If we create benefits, but we waste time and waste money and destroy reputation,
we've failed.
And if the mouse gets the cheese and he's killed,
he's failed.
So we have to do both of these things.
And when we think about risk and think about impact,
there are two kinds of impact that matter.
Bad ones, and good ones.
Uncertainties that could hurt the project,
and uncertainties that could help the project.
Both of these matter and both of these need to be managed.
And we have another word for those.
So, here's the definition of risk from the Project Management Institute, the PMI,
from the PMBok Guide.
It's the same as the others that we've seen:
an uncertain event or condition, that if it occurs, affects an objective.
But PMI knows about the mouse. PMI knows about the cheese and the traps,
and has added three words to the definition of risk here.
It's not the words 'cheese' and 'traps'.
It's the words 'positive or negative'.
What this tells us is that there are good risks, as well as bad risks.
And we heard that in one of our keynote speeches, earlier this morning.
In the uncertain situation that this country faces going forward
with all the changes that their have been, there are threats.
There are things that could go wrong.
And you need to see those and address them.
But there are also opportunities.
Uncertain things that might happen that could be good.
And we also need to see those things,
and to try and proactively make them happen.
And that is equally true in our projects,
in our personal lives,
and also at the national level.
And I'll be talking about some of those things later on this afternoon
So, PMI has this definition. The other standards have something very similar.
The iso standard, at the bottom here,
says 'risk is the effect of uncertainty on objectives.'
Note, the effect can be positive or negative.
And the APM Association, for project management in the UK says the same thing.
So we have this new idea, that risk is a double-sided concept.
And it's the same impression, the word you have for risk,
we mostly think of bad things. But it could be used for good things,
as well. Isn't that right?
It's an uncertain word.
And there are good risks as well as bad risks.
So in our project, risk management process,
we should be looking out for the traps and avoiding them
and protecting ourselves and preventing them happening.
But we should also be looking out for the cheese
and chasing it, and making it happen proactively,
so we get the maximum benefit for the minimum cost.