How To Manage Unknowns In Your Construction Projects

Learning how to manage unknowns in your project sounds very tricky and complicated but it isn’t. Every construction project, from design to physical installation will go through numerous processes and challenging situations that can derail the actual purpose of the project.

Every project has known unknowns and unknown unknowns; learning how to managing those risks are crucial for a project life cycle. Below you will find the definition of Know Unknowns and 4 steps to consider that can help you understanding how to act and react upon these circumstances.

What is a Known Unknown

By definition the known unknowns are those things that we are certain we don’t know. These ones are mostly related to experiences and knowledge areas that we or the project team hasn’t had the opportunity to experience but they know that can occur.

Typically this situations are covered by padding the estimate or adding contingency on the contract or task duration. The main purpose is not to allow for it to fail, instead having the means to recover if something were to happen.

Responding to a Known Unknown

The project management team can understand that contingency reserves are used to allocate money and reroutes to manage unknowns, in this case known unknowns. Contingency reserves are discussed with the project sponsor and must be documented in the risk registry and addressed in your risk management plan.

The known unknown must be identified, along with the even that will trigger the risk mitigation process. These types of risks are discussed early on during the project planning process and project sponsor and stakeholders confirm and validate the risk, contingency and response plan.

Managing an Unknown Unknown

Unknown unknowns are unidentified risks that are not part of the project scope neither form part of the risk management plan. Unknown unknown happen not only because of situations that trigger these events haven’t been experience before but because the project team has not analyze or brainstorm enough about the possibilities and risks of unprecedented issues.

I understand that some risks are time-dependent, others are progress-dependent while others are just residual risks after a risk has been mitigated. Events that are uncertain in nature and uncertain in consequences fall into this category and a more thorough analysis is needed.

An event must be analyzed in terms of impact, occurrence, consequence and likeliness for it to be considered as an unknown unknown. When all of these areas are not covered by any risk management plan. Then we must need to address the unknown unknown.

Addressing the Unknowns

As we have discussed there are two types of unknown. Contingency reserves will address known unknowns while management reserves are to take care of all other unknowns. The management reserve is only a discretionary quantity that is established at a corporate level or higher hierarchy allocated to address these unknown.

The management reserve it is not part of the project budget and needs to have management authorization in order to be released towards the project costs. When you are over budget because of performance issues, the management reserve is not to be used.

Fallback plans and schedule compression techniques, such as fast tracking and crashing, are great to manage known unknowns and those costs are part of the contingency reserve.

Analyzing the Unknowns

The process of managing the unknowns is a specialized task that requires SMEs contribution, management approval and risk response plan. Some of the most frequent tools used during the analysis process are:

• Percentage of cost
• Monte Carlo Simulation
• EMV or Expected Monetary Value and,
• Decision Tree Analysis

Each one of these techniques will use a systematic approach analysis costs and consequences that are part of the contingency reserve plan. The Monte Carlo simulation is used to review all the possible outcomes and probabilities of any given action upon an unknown situation. The decision tree analysis is used to determine the path and choices available when a decision is taken. The cost is tied to a percentage of likeliness of an event from happening.

The EVM is a tool that works great when a project has multiple risks that are likely to happen. The more risks identified the better the contingency reserve is calculated and designed to cover all the unknown situations. The analysis takes into consideration that risks are independent and because some of them might not happen, you can use those assigned funds to cover other areas of risk.

How did you find this article? Did you learn something new or do you have your own take on how to manage unknowns? Let us know in the comments below.