PM ADVISORY:

RISK DOCTOR BRIEFING

Universal Laws of Risk Management

By Dr David Hillson
The Risk Doctor

The term “risk management” covers many different types of risk, including strategic risk, financial risk, reputational risk, operational risk, project risk, environmental risk, legal risk, contract risk, or technical risk, as well as corporate governance, business continuity and disaster recovery. While each of these areas has its own special language, processes and techniques, there are some principles which apply to them all. These might be called “universal laws of risk management”.

The first law of risk management is that risk is uncertain. A risk is something in the future which might or might not occur. This is vital to a proper understanding of risk and its management. Risks do not yet exist, indeed they may never exist at all. They are potential future events or sets of circumstances or conditions. This makes them quite different from things which have happened in the past or which currently exist in the present. Past and present events can be analysed and measured, but future events can only be imagined or estimated. A risk which may or may not exist in the future cannot be experienced directly unless or until it happens. This makes risks different from issues, problems or constraints. In every type of risk management, risk is in the future, which is inherently uncertain.

The second law is that risk matters. If they occur, risks will have consequences which make a difference in some way. It is not possible to have an inconsequential risk, by definition. While various types of risk management focus on different sorts of consequence, all agree that a risk must affect something. This is because risks are inextricably linked to objectives….

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About the Author Dr. David hillson Author Dr David Hillson, PMP FRSA HonFAPM FIRM FCMI, is internationally recognized as a leading thinker and practitioner in risk management. He is Director of Risk Doctor & Partners (www.risk-doctor.com), and has worked in over 40 countries. He is a popular conference speaker and award-winning author on risk, with six books on the topic. David has made several innovative contributions to improving risk management, and is well known for promoting the inclusion of proactive opportunity management within the risk process, and for his ground-breaking work in risk psychology. David is an Honorary Fellow of the UK Association for Project Management (APM) and past chairman of its Risk Management Specific Interest Group. He is an elected Fellow of the Institute of Risk Management (IRM), the Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA), and the UK Chartered Management Institute (CMI). David is also an active member of the Project Management Institute (PMI) and was a founder member of its Risk Management Specific Interest Group. He received the PMI Distinguished Contribution Award for his work in developing risk management over many years. Since 1998 he has been a core author for the risk chapter of the PMBOK Guide®, and is a core author for the PMI Practice Standard for Project Risk Management. David can be contacted at david@risk-doctor.com. To see his latest book, Managing Risks in Projects, published in July 2009 by Gower, visit http://www.gowerpublishing.com/isbn/9780566088674.