Black Swan Management
1. WHAT IS A BLACK SWAN EVENT?
It is clear that risk management is a highly important element in management today as it identifies and assesses risks and then applies resources to minimize (or maximize) and monitor the probability and impact of unfortunate events (or opportunities). This way, companies are able to cope with a lot of risky situations by predicting them and by setting aside the right resources to handle them. However not all risks and events can be predicted and these can have a huge impact. They are called Black Swans.
Now where does the term Black Swan come from? People used to be convinced that all swans were white. This was empirically proven as no one had ever seen a black swan. But when someone did see a black swan, the belief of centuries that there weren’t any was immediately disproven. So a single observation can invalidate a general statement. A Black Swan has three features. For one, the event is a surprise. To the observer that is. The event doesn’t have to be unexpected for everyone to be a Black Swan but for the observer. For example, the attack on the World Trade Center was a Black Swan. It was unforeseen by the U.S. government as it had never happened to them before (not knowing that terrorist attacks have stained the history of other countries). Other experts however already warned that this situation might happen. Other examples are the rise of Hitler and the spread of the internet. Secondly, it has a major impact. And thirdly, after the event has occurred, people rationalize by hindsight that it could have been foreseen. So there is a retrospective predictability. Next to this people very often tend to act like these events just don’t exist, which is remarkable as all Black Swans combined have a much larger importance than regular occurrences. So what we do not know is far more relevant than what we do know. For this reason, Black Swan theory also asks the question: Why do people often only see the small, daily, normal things
It is clear that risk management is a highly important element in management today as it identifies and assesses risks and then applies resources to minimize (or maximize) and monitor the probability and impact of unfortunate events (or opportunities). This way, companies are able to cope with a lot of risky situations by predicting them and by setting aside the right resources to handle them. However not all risks and events can be predicted and these can have a huge impact. They are called Black Swans.
Now where does the term Black Swan come from? People used to be convinced that all swans were white. This was empirically proven as no one had ever seen a black swan. But when someone did see a black swan, the belief of centuries that there weren’t any was immediately disproven. So a single observation can invalidate a general statement. A Black Swan has three features. For one, the event is a surprise. To the observer that is. The event doesn’t have to be unexpected for everyone to be a Black Swan but for the observer. For example, the attack on the World Trade Center was a Black Swan. It was unforeseen by the U.S. government as it had never happened to them before (not knowing that terrorist attacks have stained the history of other countries). Other experts however already warned that this situation might happen. Other examples are the rise of Hitler and the spread of the internet. Secondly, it has a major impact. And thirdly, after the event has occurred, people rationalize by hindsight that it could have been foreseen. So there is a retrospective predictability. Next to this people very often tend to act like these events just don’t exist, which is remarkable as all Black Swans combined have a much larger importance than regular occurrences. So what we do not know is far more relevant than what we do know. For this reason, Black Swan theory also asks the question: Why do people often only see the small, daily, normal things