It was the perfect day, the sun smiled brightly confiding us with its brightness and warmth. Out of blue, the sky turned dark, following a heavy storm, which was completely unanticipated.
This sounds good as a fictional tale, but what if fiction becomes reality?
It took only a few weeks for coronavirus to pave its way deep inside the core systems and altogether infected the economic system, forcing workers and consumers into quarantine, paralyzing factories and markets, and shaking stock exchanges worldwide.
What are Black Swans?
The term ‘Black Swan’ was coined by Nassim Nicholas Taleb in his book ‘The Black Swan’. Unpredictable or high impact events were categorized under this label. For starter it may look like defining a mere term but the the impact of such an occurrence in long-lasting and sometimes permanent.
According to Taleb, a Black Swan event has three attributes:
“First, it is an outlier, as it lies outside the realm of regular expectations because nothing in the past can convincingly point to its possibility.
Second, it carries an extreme ‘impact’.
Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.”
Why COVID-19 is not a Black Swan
Since the past couple of months there have been countless articles, analyst reviews which asserts that COVID-19 is a Black Swan.
Taking a fleeting glance at Taleb’s definition suggests otherwise.
It does not hold true that COVID-19 pandemic is a Black Swan event.
Taleb says that for an event to be classified as a Black Swan “nothing in the past can convincingly point to its possibility.”
If we break this down further, we have experienced pandemics frequently, with the latest only a decade ago, in 2009. So, a pandemic was absolutely predictable.
Recent pandemics, for example, resulted from influenza viruses.
Does this mean the current coronavirus pandemic was unpredictable and therefore a Black Swan?
Again, this is not the case. Scientists have recorded evidence of past possible coronavirus pandemics. The SARS coronavirus outbreak that started in 2002 had the world nervously hoping it would be controlled before reaching pandemic status.
A future coronavirus pandemic was completely predictable, and even if it was not named as such, national risk registers, such as the UK Government’s, contained separate entries for ‘Pandemic Influenza’ and ‘Emerging Novel Diseases’. Essentially, the potential for a pandemic developing from a non-influenza source was clearly identified.
With great certainty one who has read that book [The Black Swan] can conclude that, such a global pandemic is explicitly presented there as a White Swan: something that would eventually take place with great possibility.
The bottom line lies in the fact that such events pose challenges to prepare for high-consequence, low-probability events.
But why is it difficult to be prepared for such events?
Part of the answer is related to human psychology, focusing on immediate threats rather than risks that seem far in the future. Imminent low-level threats seem more important to us than high-level events, which we find hard to imagine. Our human tendency is to assume such things are unlikely to happen to us. And we tend to stay in denial.
If we determine that a severe pandemic is a once-in-a-century event based on current experience, this would be logged in a risk register as a high-consequence, low-probability event. Something with extreme impact, but unlikely to happen in any given year. Because of this human tendency, organizations often focus on probability rather than consequence, mistakenly seeing the once-in-a-century likelihood as meaning this event will occur many years into the future and can therefore essentially be disregarded.
The saying ‘Precaution is better than cure’ completely becomes void here and we’re counting on a risk perception system to save us that’s better designed to protect us from carnivores and the dark than global abstractions laced with technological complexity and unknowns.
In short we become highly optimistic about the path that lies ahead when the detail are blur.
This instinct also results in organizations, and even governments, failing to take high-consequence, low-probability events as seriously as they should, with the resulting failure to plan effectively for them.
Focus on Future
What other high-consequence, low-likelihood events should we prepare for?
Are there other high-consequence, low-likelihood events that society is currently effectively ignoring?
Unfortunately, there is a long list.
Consider the following, all of which are predictable and some of which are inevitable (the only question being of ‘when’, not ‘if’.
How many of these are you ready to face with a plan of action?
A Biological War.
A highly successful cyber attack.
A Chemical, radiological and nuclear (CBRN) attack on a highly populated central business district
A severe space incident
A super volcano eruption.
There is another category of high-consequence event: those that are not low-likelihood events that we can see are already underway, but that are slow developers — more a ‘boiling frog’ event than a Black Swan, such as climate change or antibiotic resistance.
The COVID-19 pandemic is causing organisation and professionals to question the industry mantra that scenarios should not be planned for, rather only impacts should be considered. However, this approach may have been ineffective for the current pandemic.
Business continuity professionals are starting to accept the importance of playbooks – specific plans for specific scenarios where taking an impact-only approach does not provide enough specificity for effective business continuity.