Understanding the unknowns
“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.”
Donald Rumsfeld uttered these words on February 12, 2002. Pretty much exactly 23 years ago. You may need to read and re-read the quote a few times to make sense of the apparent contradictions and double negatives. Our advice is to absorb the words, because at Lewis Woolcott, we think this quote is genius. And we’re not alone…
Canadian columnist Mark Steyn called it “a brilliant distillation of quite a complex matter.” Australian economist John Quiggin noted that “although the language may be tortured, the basic point is both valid and important.”
The term is also commonly used within NASA, reinforcing its relevance in high-stakes industries. But why does this quote resonate so strongly with us? Because it applies perfectly to risk management, a discipline at the heart of what we do at Lewis Woolcott.
What is risk management and why is it important?
Businesses cannot operate without risk. Economic, technological, environmental, and competitive factors introduce obstacles that companies must not only manage but also overcome.
According to PwC’s Global Risk Survey, organisations that embrace strategic risk management are:
- 5 times more likely to deliver stakeholder confidence and better business outcomes
- 2 times more likely to expect faster revenue growth
Risk management is the systematic process of identifying, assessing, and mitigating threats or uncertainties that could impact an organisation. In our case, your projects. It involves analysing the likelihood and impact of risks, developing strategies to minimise harm, and continuously monitoring measures’ effectiveness.
As Harvard Business School Professor Robert Simons states: “Competing successfully in any industry involves some level of risk.”
How we approach risk at Lewis Woolcott
At LW, we understand that risk applies differently to each project. Consider a contractor preparing a bid or tender: they need to “price” the risks they assume under contract. Risks are inherently uncertain—if their impact can be accurately measured, they are itemised with a firm price. However, unknown causes and effects require contractors to allocate contingency funds.
Contingency analysis is common to all capital project organisations (essentially, anyone involved in building something). It is calculated using risk modelling techniques, setting aside funds for anticipated uncertainties. Whether you’re an owner/operator ensuring sufficient project funding or a contractor safeguarding profitability on a fixed-price contract, contingency planning is critical.
At LW, we provide this service early in project development, using specialist software such as @Risk, Crystal Ball, and our proprietary LWARE tools. Large-scale projects often revisit contingency allocations as they progress, using techniques like contingency drawdown distribution reviews.
Managing risk with data-driven insights
Risk management extends beyond just forecasting, it requires active monitoring of budgets, costs, and emerging risks. Our commercial advisory services include:
- Early identification and quantification of risks
- Financial valuation techniques for accurate mitigation strategies
- Schedule risk analysis powered by LWARE Logic+
- Quantitative risk management through OPC tools
By leveraging proprietary risk modelling techniques, we help clients identify and quantify financial risks; whether arising from contaminated ground, climate conditions, price escalation, third-party dependencies, or regulatory changes. Our accurate forecasting enables organisations to proactively mitigate risks, potentially saving millions.
For example, if we determine that a risk could cost $10M, we advise spending $1M on mitigation, ultimately yielding a $9M net saving. Without accurate risk identification and valuation, businesses may underinvest in mitigation, exposing themselves to avoidable losses.
Why risk management matters for project success
Beyond financial impacts, our risk analysis supports:
- Accurate project delivery timelines
- Program acceleration and risk mitigation
- Contractors avoiding liquidated damages by correctly estimating project durations
Let’s talk about your unknowns
At Lewis Woolcott, we specialise in mitigating financial risk so that you don’t have to. We help clients uncover the unknowns they need to know, before they become costly problems.
Risk management is essential for project success. While some risks are inevitable, your ability to identify and mitigate them determines your project’s outcomes. That’s where we come in.
We’ve helped clients like Rio Tinto, CPB, WBHO, Clough, Origin, and Samsung C&T navigate risk successfully. If you’d like expert guidance on your risk management strategy, get in touch.