4 Types of Project Risk - Different Forms of Uncertainty

TL;DR

This video explains the four categories of uncertainty and risk in project management: known knowns, known unknowns, unknown unknowns, and unknown knowns.

Transcript

when we think about risk we can define it simply as uncertainty that can affect outcome the two principal components of a risk are therefore the probability and the impact and we often classify the impacts into the type of impacts such as impact on schedule impact on budget impact on quality impact on compliance on politics on society and people we... Read More

Key Insights

• 📽️ Risk in project management is characterized by both probability and impact, with impacts classified into various types.
• ✳️ Risk can be categorized into four types of uncertainty: known knowns, known unknowns, unknown unknowns, and unknown knowns.
• ❓ Known knowns have a predictable probability but an uncertain occurrence and require a probabilistic approach for management.
• 👨‍🔬 Known unknowns arise from gaps in knowledge, and their management involves research, data gathering, and further study to reduce the level of risk.
• 🖤 Unknown unknowns arise from a complete lack of knowledge and can only be managed through constant horizon scanning and discovery.
• 😑 Unknown knowns represent latent risks that have been forgotten or obscured, and they can be managed through improved knowledge management and the pre-mortem approach.
• ✳️ Understanding the different types of risks and uncertainties is essential for effective risk identification and analysis in project management.

Questions & Answers

Q: What are known knowns in project management?

Known knowns are risks that we are fully aware of, but their occurrence is uncertain. These risks have a predictable probability, but we cannot precisely predict when they will happen. Examples include probabilistic events like rolling a die, where we know the probability distribution but not the exact outcome.

Q: How can known knowns be managed in project management?

Known knowns can be managed through a probabilistic approach. If there are a large number of potential occurrences, statistical analysis can help determine the right level of contingency planning. For a single occurrence, statistical modeling can be used to predict likelihoods of different outcomes.

Q: What are known unknowns in project management?

Known unknowns are risks that arise from gaps in knowledge, but we are aware of these gaps. They are reducible risks that can be addressed through research, data gathering, further study, and experimentation. The goal is to refine knowledge and reduce the level of risk.

Q: How can unknown unknowns be managed in project management?

Unknown unknowns are risks that arise from a complete lack of knowledge. The best way to manage them is through constant horizon scanning and discovery. Project managers should actively survey the horizon to spot emerging signs of unknown or surprising factors and convert them into known unknowns through research and study.

Summary & Key Takeaways

• Risk in project management can be classified into four categories: known knowns, known unknowns, unknown unknowns, and unknown knowns.

• Known knowns are risks that have a predictable probability but an uncertain occurrence, and they are best managed through statistical analysis and contingency planning.

• Known unknowns are risks that arise from gaps in knowledge, and they can be reduced through research, data gathering, and further study.

• Unknown unknowns are risks that arise from complete lack of knowledge, and they can only be managed through constant horizon scanning and discovery.

• Unknown knowns are risks that have been forgotten or obscured, and they can be identified and managed through improved knowledge management and the pre-mortem approach.