COVID-19Risk Management

Risk Managers Who Seek Gray Rhinos and Don’t Call Them Black Swans

By February 23, 2021No Comments

Some enterprise risk managers call unexpected but predictable events gray rhinos and avoid the term black swan.

As awful, disruptive and devastating as the Covid-19 pandemic has been, it’s not worthy of being called a black swan, according to more than one pundit. They include the man who made the term famous: Nassim Taleb, author of “The Black Swan,” whose subtitle is “The Impact of the Highly Improbable.”

  • Unlike a black swan event—unpredictable, with massive impact— the argument goes, the pandemic, along with some other recent examples that felt cataclysmic, was both predictable and predicted.

Gray rhinos. Consistent with this theme, at a recent meeting of NeuGroup’s enterprise risk management group, members advised identifying and preparing for foreseeable major threats. Some of them used a term for them found in another book: gray rhinos.

  • Its subtitle: “How to Recognize and Act on the Obvious Dangers We Ignore.”
  • The idea, author Michele Wucker writes, is that a highly probable, high-impact threat is “something we ought to see coming, like a two-ton rhinoceros aiming its horn in our direction and preparing to charge.”

Failure of imagination? One member said he doesn’t like the term black swan, in part because it can be used as an excuse for conveniently ignoring risks that are actually foreseeable and therefore require companies and other institutions to take action before it’s too late.

  • He argued that failing to plan properly for Covid-19 may reflect a “failure of the imagination” about how widespread the damage of a pandemic could be to the economy and the world.
  • Calling something a black swan, he said, can also suggest there was “nothing we could do about” a particular problem, when that is often not the case.

What to do about the rhino? One ERM practitioner who tries to find gray rhinos warned that identifying major, predictable threats does not mean it’s easy “to pick off pieces that are actionable.”

  • For example, a gray rhino like climate change, members agreed, is a threat almost everyone can see coming but is attacking on many different fronts. That raises the question of where you start.
  • “It’s a challenging topic, easy to kick the can down the road,” the member said.

Fighting off the beasts. To plan and prepare for other, multiheadedthreats that can upend business models, several ERM practitioners are war-gaming various scenarios that could result in serious damage or the end of the company.

  • One member said his company was not “doing anything specific [in terms of black swan scenarios]” but has done “war-gaming for inflection points in our markets,” trying to ferret out “key technologies that could break the business model.”
  • Another member mentioned using war-gaming to mitigate risk around cyberattacks.
  • A third risk manager said that after this company successfully dealt with the pandemic and a hostile takeover attempt, senior management decided to stop scenario planning for now.
    • This company, the member said, also “got away from fighting about what color or animal” a threat represented. Now they call something that’s “low likelihood and high impact” simply an “unexpected event.”
Justin Jones

Author Justin Jones

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