On February 12 2002, US Secretary of Defence Donald Rumsfeld made a now famous remark that has since went on to be commented on widely by critics and thinkers. It would become so famous that it would become the title of his autobiography "Known and Unknown: A Memoir", and provides a superb basis to discuss our approach to Project Risk Management:
"...because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don't know we don't know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones"
Let's break this down:
So together we can financially plan for Unknowns in our Projects with our Total Risk Budget= Contingency Reserve + Management Reserve. There are complications of course: residual risk costs, secondary risk costs, action costs (factored in your plan baseline?), Accepted Risk costs etc - but the basic principle is quite simple at its core.
Do you use this approach for Risk management, or do you use only a management-type reserve OR a calculated risk budget? Let us know in the comments. We will soon be making available a Risk Log Template for sale that helps you document these costs to make sure you are managing your Unknowns as effectively as possible - to maximise your chance of project success!
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