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

2
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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?

32
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I think it's very simple to separate
risk and uncertainty.

33
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And I used 3 English words,

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

35
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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.

37
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It might, it might not,
it's irrelevant, it doesn't matter.

38
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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.

41
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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.

51
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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?

89
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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.