ISO 31000 defines risk as the effect of uncertainty on objectives so to understand this definition we will cover the three main concepts objectives uncertainty effect uncertainties can have over objectives so let's understand these concepts with help of an example the main character in our example is John while John may have multiple objectives for this example let's focus on one specific objective in our example John has to attend a very important sales meeting tomorrow at 9:00 a.m. he has to get to the meeting on time if he is late the meeting will be canceled and he will lose the deal the value of the deal for John is 1 million dollars so the objective for John for our example is to get to the meeting before 9:00 a.m. so the meeting can start at 9:00 a.m. next let's provide some additional context to this example this is where John lives and this is where the office is located where John needs to attend the meeting to travel to the office John will need to take a taxi to travel to the station this typically takes 20 minutes once John gets to the station he has to take a train to the station close to the office the train journey typically takes 45 minutes and John typically has to wait for five minutes to get on the train once John gets to the target station he has to walk to the office and this walk typically takes him 10 minutes so let's say John wants to get to the office by 8:55 a.m. so if everything goes according to the plan John needs 80 minutes to travel from his home to the office for the meeting so he needs to leave his home latest by 7:35 a.m. now that we have a context for John's objective let's cover the second concept of the definition which is uncertainty as this is a very important meeting for John he wants to manage various risks which may result in him not getting to the meeting before 9:00 a.m. to understand risks he needs to first understand the various uncertainties of his context to keep the examples simple here are the four uncertainties John may have to consider will he be able to wake up on time and be ready when his taxi arrives will the taxi arrive on time and get to the station in 20 minutes will the trains be operating on time and get to the target station in 45 minutes and the last uncertainty is on whether he will be able to walk from the station to office in 10 minutes please note that John may be able to influence some uncertainties example wake up on time and be ready when the taxi arrives but he will have little or no influence on certain uncertainties such as taxis and trains operating on time irrespective of the influence John has on uncertainties he still needs to consider them to achieve his objective of getting to the meeting before 9 a.m. now let's understand the third concept of the risk definition which is the effect of uncertainty effect of uncertainty can be expressed as potential events plus the consequences of such events so let's look at each uncertainty and what potential events and consequences could result from these uncertainties for simplicity I'm only covering one potential event for each uncertainty for our first uncertainty potential event may be that John wakes up late due to a faulty alarm clock the consequence of this may be that John is not ready when the taxi arrives and hence hence he is not able to start his journey on time and delayed for his meeting for a second uncertainty the potential event may be that the taxi Union calls a strike in the morning and hence the taxi John has booked does not arrive to pick him up the consequence of this event may be that John is unable to travel and get to his meeting for our third uncertainty potential event may be that trains may be delayed due to bad weather due to this John will not be able to get to the target station on time and hence may get delayed for his meeting for a fourth uncertainty potential event may be that you do a political rally certain roads near the office may be closed the consequence of this event may be that John needs to take a slightly longer route to the office and hence may get delayed for his meeting so let's conclude our example by bringing all the three concepts of risk definition together to understand risk it is critical to first understand the objectives of the main subject which may be an individual organization project or product etc next you need to understand the context of the main subject from which you need to identify the key uncertainties once you've identified the uncertainties you can identify the effect of each uncertainty in form of potential events and the consequences which becomes the key part of defining any risk please provide your feedback in the comments area on the video if you would like to see additional risk management related definitions covered with an example please share these in the comments area thank you for your time and attention today
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