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Risk Doctor Briefing: Risks with 100% Probability

SERIES ARTICLE

Dr David Hillson PMI Fellow, HonFAPM, FIRM

The Risk Doctor Partnership

UK
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One of the first things I learned about risk was that every risk has both a probability less than 100%, as well as an impact on at least one objective. Some of my risk colleagues talked about risks with 100% probability, but I disagreed with them. As I’ve discovered more about risk, I’ve realised that my colleagues were right! There are risks with 100% probability of occurrence. In other words, they are either happening now or they are certain to happen in future.

Most people’s first reaction to the idea that a risk can have 100% probability is to disagree. After all “uncertainty” is a key part of the definition of risk, and 100% probability means “certain”. But this leads to a very limited view of the types of risk that we need to understand and manage.

A previous Risk Doctor Briefing (Number 73, July 2012) discussed four types of risks that could affect our businesses and projects. Each of these is an “uncertainty that matters”, but only one type has probability less than 100%.

  1. The first type of risk is a future possible event, which we call “stochastic uncertainty”. This is something that has not yet happened and it may not happen at all, but if it does happen then it has an impact on one or more of our objectives. Most identified risks are like this: a key supplier may go out of business, the client might change the requirement, or new regulatory constraints might be imposed. We can estimate a probability of occurrence for each of these possibilities, which is less than 100% because the future event is uncertain.
  1. Second we have risks arising from variability (also called “aleatoric uncertainty”), where some aspect of a planned task or situation is uncertain. For example we may plan to run a 15-day trial, but the duration could in fact be anywhere between 10-20 days. The probability of running the trial is 100%, but its duration is uncertain. Other variable parameters include cost, resource requirement, productivity, defect rate, performance, etc.

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About the Author

flag-ukDr. David HillsonDr. David Hillson

The Risk Doctor

Dr David Hillson CMgr FRSA FIRM FCMI HonFAPM PMI-Fellow is The Risk Doctor (www.risk-doctor.com).  As an international risk consultant, David is recognised as a leading thinker and expert practitioner in risk management. He consults, writes and speaks widely on the topic and he has made several innovative contributions to the field. David’s motto is “Understand profoundly so you can explain simply”, ensuring that his work represents both sound thinking and practical application.

David Hillson has over 25 years’ experience in risk consulting and he has worked in more than 40 countries, providing support to clients in every major industry sector, including construction, mining, telecommunications, pharmaceutical, financial services, transport, fast-moving consumer goods, energy, IT, defence and government. David’s input includes strategic direction to organisations facing major risk challenges, as well as tactical advice on achieving value and competitive advantage from effectively managing risk.

David’s contributions to the risk discipline over many years have been recognised by a range of awards, including “Risk Personality of the Year” in 2010-11. He received both the PMI Fellow award and the PMI Distinguished Contribution Award from the Project Management Institute (PMI®) for his work in developing risk management. He is also an Honorary Fellow of the UK Association for Project Management (APM), where he has actively led risk developments for nearly 20 years.  David Hillson is an active Fellow of the Institute of Risk Management (IRM), and he was elected a Fellow of the Royal Society of Arts (RSA) to contribute to its Risk Commission. He is also a Chartered Fellow of the Chartered Management Institute (CMI) and a Member of the Institute of Directors (IOD).

Dr Hillson can be contacted at [email protected].

To see other works previously published in the PM World Journal by Dr David Hillson, visit his author showcase at http://pmworldlibrary.net/authors/dr-david-hillson/