As soon as a previously unplanned risk is identified, it needs to be evaluated along the following criteria (minimum set of criteria)

- probability

- impact (quantified and/or qualitative)

- measures (preventive and/or re-mediating)

- impact after measures

and incorporated in the risk (or risk/opportunity) register together with the person responsible for managing the risk. Thereafter, the risk will be handled according to the relevant risk management standards, e.g. monthly walk through with management and update of the risk/opportunity register accordingly.

The usual preparation for unknown risks and uncertainty is a risk contingency.

There is an important literature on risk management and uncertainty, which problematises the idea of calculable risk. You may find some interesting ideas and references in my recent article in Accounting, Organizations and Society.

Article Resisting hybridisation between modes of clinical risk manag...

The concept of High Reliability Organizations (HRO) aims to prepare organizations for dealing with unplaned risks and underying uncertainties. Another important element is effective implementation of risk management practices that enable to minimise risk effect escalation, if an unplanned risk occurs.

Risk is a potential failure point for the project. Surprises do spring up. The PM should react in a cool, considered and mature manner. As soon as new risk is identified, it must be communicated, confronted, deliberated, and carefully analysed for potential impact on the project budget, timeline, and scope. There should be no short cuts and knee jerk reactions. Considered and knowledgeable response from the team or the available experts should be given. The risk should be documented and decision to mitigate, manage or ignore the risk be taken. Through strong culture of planning, communication, sharing and resilience, the organizations prepare themselves for known and unknown risks and uncertainities.

Risks and Uncertainty are two different concepts. Sanderson, J., 2012. (Risk, uncertainty and governance in megaprojects: A critical discussion of alternative explanations. International Journal of Project Management 30, 432-443) elegantly distinguish these two concepts upon prior literature (notably Knight, 1921). Winch and Maytorena (2011, Managing risk and uncertainty on projects: A cognitive approach, in: Morris, P.W.G., Pinto, J.K., Söderlund, J. (Eds.), The Oxford Handbook of Project Management. Oxford University Press, Oxford, pp. 345-364.) posit two different unknowns (uncertainty): 'known unknowns' and 'unknown unknowns' as function of decision makers' or project actors' cognitive capability. Using this view, How does an organisation prepare and react unknown risks and uncertainty would depend upon the actors' (senior management, project practitioners) own state of mind, subjective and socially constructed 'rationality'.

By definition, a risk is an uncertain event(PMI, 2013) which means any certain event is not a risk no matter what are the consequences of this event. I beleive this should clarify the difference between risk and uncertainty. According to your question, the unknown risks are usually unplanned risks they have a potential of projects' failure. You can't identify them because if you are able to identify them before thier occurrence this means you can add them to the risk management plan as one of your planned risks. Otherwise, if the unknown risk has occured beforeits identification then project managers should react as follows:

1- Absorb the immediate impacts using the risk contingency

2- Evaluate the possible impacts and calcualte its costs (document and repor it to higher authorities)

3- Generate possible responses (if it is not a bearable cost) and ask for a budget for this response/ mitigation action cost

4- Monitor and Interfer to control the risk once it is required.

5- Update the risk management plan and the risk management policy (if necessary) accordingly.

According to your question about the alternative of classic planning in project management it should be DYNAMIC. You can't prepare for unknown risks because are not able to identify them prior to their occurence. But if it is necessary to prepare for them then the most you can do is to assign risk contingency for unkown risks mitigation.

Mohammad has an excellent point about risk and uncertainty. A universal "known" risk is that some tasks on the project will finish late, some of which will delay the project. "Risk" is present because it is impossible to predict which tasks will finish on time (finishing more than an occasional task early is rare), and which will be late.

Establishing aggressive time durations for every task and building into the schedule activities requiring time but no resources is the latest and most successful process for dealing with this pervasive risk. The time "buffers" are called by various names such as schedule margin, schedule reserve, project buffer, etc., and can be placed following path mergers, before significant milestones, and at the end of the project.

Projects long have had a cost buffer (Management Reserve); it is time to address schedule risk with schedule buffers.

The paper looks very interesting. Thanks for posting it.

I very much appreciate your mention of the Paté-Cornell paper 'On "black swans" and "perfect storms".'

The paper discusses the different types of risk represented in "black swan" and "perfect storm" events and presents an engineering risk analysis approach to deal with them. Elisabeth Paté-Cornell explains how this type of event sometimes can be anticipated, if sufficient attention is applied to signals received, and, if it cannot be anticipated, how it can be handled in a timely, logical manner. She applies her engineering risk management techniques to diverse fields including engineering, medicine, finance, and human behavior.

Have a look at

Williams, T., Klakegg, O. J., Walker, D. H. T., Andersen, B. and; Magnussen. O. M. "Identifying and Acting on Early Warning Signs in Complex Projects", Project Management Journal, 43:2, April 2012, pp. 37-53.

Also http://pmperspectives.org/article.php?view=full&aid=49

Shankar

1) How do project managers react to unplanned risks during implementation

try decision tree analysis eventually with probabilities on each of the branches

2) How does an organisation prepare for unknown risks and uncertainty?

try scenariowriting. many books on the subject. keep it simple, as examples large oil industries experience

Another approach is to treat components of projects as "emergent processes", hence, expect that you cannot plan things upfront. Then you can use management tools for emergent processes, like the inclusion of external experts, changing leadership, etc. I have co-authored an article about managing emerging processes and how Jazz musicians show us how to handle such situations. You can check out my publications.

Hi, if it was not predicted, then improvisation is the only way project managers react (traditional fire fighting the circumstances). However, if there is a process in place to deal with crisis situations, than certain level of mitigation can be expected, whereas in a place where there is no such a process, one can expect acceleration of the side effects related to the emergent risk. This is well discussed by Shewhart.

I will add that managing the unplanned risks requires skills rather than plans.

In project risk management, there are two types of reserves are added to the cost of your project. One is 'Contingency reserve' (for known unknown aka. known uncertainties) and Management reserve (for unknown unknown). By adding a management reserve, you take care of unknown uncertainties. If you ask how much would you add, it is totally based on, 'expert judgement'.

I have explained this in terms of PMI terms.

According to Knight, risk has a probability distribution and can be insured. Uncertainty means that there is no probability distribution of the outcomes and is not insurable.

There is time between actions and outcomes. Foresight on the project can be helpful in dealing with uncertainty. Foresight stems from deeper knowledge and getting deeper knowledge and understanding will be a partial solution in dealing with uncertainty. Constantly monitor the process because there will be unintended consequences in all projects. However, uncertainty is the source of profit. If we can insure all risk and uncertainty, there will be no profit.

Arrow points out that uncertainty accompanies the project and entrepreneurship because there is no market for future goods. Therefore, uncertainty is the source of profit and loss. Successful projects will bear profits and unsuccessful projects will result in.losses.

One way could be we simulate "risky" scenarios and then develop our capabilities to understand and counter. The way uncertainty can be handled is by learning from others, keeping reserves and most importantly developing a trained mind set to tackle uncertainty. It will be instructive to understand the sources of uncertainty and then try to counter them.

Unknown:

All relevant analyses start with a definition of ultimate tolerance. For example, can the capital provider tolerate total failure, budget over-run of 20%, delay by 200 days etc. This definition then cascades down the process and so tolerance at each level can be defined.

Once tolerance is defined you also know how much to invest in contingency.

You also know which parameters are critical and will focus management and analysis here. If the uncertainty is too high to permit within-tolerance process then reduce the uncertainty or reduce the significance of that critical step. Of course you need to know how likely it is that the process will be within tolerance and you need a policy on the level of confidence that is acceptable.

Unplanned:

First compare the effect of the change with your tolerance specification. If its within spec, keep an eye on it and on any moderating effect which may amplify to an unacceptable level.

There must be RISK Management plan based on PROJECT CHARTER and keeping the involvement of all stakeholders while making PROJECT RISK management plan.

I advocate the strategies outlined in the book by De Meyer, A., Loch, C.H. and Pich, M.T., - dealing with uncertainty. 

I also like the work of Annette Mikes (done with Rabert Kaplan) on strategic risks (and in calculative cultures)