Black Swan events: Are we asking the wrong questions?

For those who are not familiar with the concept, the Black Swan is a theory developed by Nassim Taleb and explained in his book “The Black Swan: The Impact of the Highly Improbable”. It’s about events happening in history and sharing those three characteristics:

• They are hard to predict
• They have massive impact
• They induce retrospective distortion, which means they are prospectively unpredictable but retrospectively (give the illusion to be) predictable

Not all Black Swan events are crisis (a disruptive innovation can be considered as such), but some crisis have the unpredictability and the magnitude proper to Black Swans (the 9/11 attacks, the 2008 market crash and the current COVID-19 pandemic).

Always blaming the Swan

The devastating consequences of such events for many organisations cannot be entirely blamed on the cataclysmic event itself. The current risk management frameworks are simply not adapted to Black Swan events. Because understandably, they focus on high probable events with high Impact and are struggling to predict the Highly Improbable.

Asking the right question

What is the probability of a global market crash? What is the probability of a global epidemic? What is the probability of a global Cyber blackout?

And what if we are simply asking the wrong questions?

Even though the probability of each of those events is low, the last decade alone showed us that the occurrence of the Black Swan event itself is more than probable!

So maybe, we should ask ourselves: Are we ready for the next Black Swan event?

The key to readiness…

When it comes to Black Swan events, we should skip the identification and evaluation phases and focus on response. The key to readiness is an adaptation of the crisis and continuity management plans by including measures limiting the impacts of Black Swans.

Because even if these event scenarios are unpredictable, the related impact scenarios are always the same. The complexity of a Black Swan event is that it triggers many (if not all) continuity scenarios at once:

• Unavailability of premises
• Unavailability of HR
• Unavailability of IT services
• Unavailability of Third parties
• Etc

Thus, overwhelming the crisis cells, leading to confusion, great loss and sometimes bankruptcy.

…a change of risk culture

Here are some ideas to add a layer of resilience to organisations:

1. Include Black Swan events in the risk culture of organisations through awareness so employees are mentally prepared for disruptive events happening every now and then
2. Evaluate the Black Swan event as Probable with High Impact (with no distinction for their type, whether pandemic, economic, political or technological)
3. Include Black Swan in the crisis management and continuity planning as a distinctive scenario
4. Elaborate a Black Swan exercise simulating a complex crisis environment by combining multiple impact scenarios

I am sure we can find plenty of plausible (or more plausible) ideas, but we cannot move forward while being crippled each decade by some predictably unpredictable event.

Be safe and stay tuned!

For any question or assistance about risk management, business continuity or crisis management issues, feel free to contact us at: paul@clarice.cloud