THE NEW RISK MANAGEMENT | 1
In a world filled with risks, there are a lot of swans out there.
Black swans. Grey swans. White swans.
Of course, we're not talking about birds. We're talking about the different types of risks --
some predictable, some not. These are all risks that are capable of bringing an organization
down to its knees.
Nassim Taleb, a mathematical statistician and risk analyst, is credited for coining the term
"Black Swan". His book "The Black Swan: The Impact of the Highly Improbable" focused on the
extreme impact of rare and unpredictable events. He described it thus:
A black swan is a highly improbable event
with three principal characteristics: it is
unpredictable; it carries a massive
impact; and, after the fact, we concoct
an explanation that makes it appear less
random, and more predictable, than it
was.
For instance, the global financial crisis of
2008 would be a good example of a black
swan event.
Editor's Note
Some would argue that the term Black
Swan was not invented by Taleb.
Instead, it is attributable to a Latin
expression that means something
that is highly unlikely. To put it into
perspective, before the English
discovered Australia, they believed all
swans were white; and a black swan
was impossible or non-existent.
Grey Swan: these can be considered "long-tail risks" -- events that have a low probability
of occurring but could have a potentially large cascading impact if they did. Since the
threat is highly unlikely, there is a tendency for companies to ignore these risks or provide
scant resources for their occurrence. (Case in point: the 9/11 attack on U.S. soil. This was
due to the size of the impact and the warning signs that were ignored.)
White Swan: these are highly predictable events that can be easily anticipated and
estimated. (Taleb considers a global pandemic (like COVID-19) a white swan – "an event
that is certain to occur at some point. Such pandemics are inevitable, they come because
of the structure of the modern world; and their economic consequences will be even more
serious as a result of increasing interconnectedness and exaggerated optimization."
The other two risks are more predictable:
