Yuri Raydugin, P.Eng, MBA, PhD, Principal Consultant at Risk Services & Solutions, Inc. points out that project management practitioners recognize the need to consider “unknown unknowns” in project risk management. However, clear and consistent recommendations on incorporating these uncertainties into risk models have yet to be proposed.
In a recent white paper, Dr. Raydugin outlines a useful thinking process to address this problem and comes up with practical recipes on handling unknown unknowns using Monte Carlo simulation. Four dimensions of unknown unknowns are discussed: the novelty of a project, the phase of project development, the type of industry, and bias. A discussion on unknown unknowns vs. corporate risks is provided. Practical recommendations on including unknown unknowns into probabilistic cost and schedule risk models are put forward.
