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Can Your Company’s Operations Cause a Black Swan Event?

According to Nassim Nicholas Taleb, Black Swan events are rare, catastrophic events that many retrospectively assert could have been predicted and thus prevented. But can they? Could your company’s operational performance cause the next Black Swan tragedy?

Before we answer the question of whether or not your company’s operations could cause a Black Swan event, I need you to consider your organization’s risk tolerance as we’ll be defining the Black Swan event in those terms.

You see, Black Swan events reported by the media are defined by a much higher impact and scope than what most organization’s can tolerate. So with your organizations unique tolerance in mind, consider the following question sets regardless of how the event might be initiated:

Set 1

  • Does your company’s operations involve significant amounts of hazardous or potentially hazardous materials?
  • Does your company’s operations involve high energy systems or materials?
  • Does your company operate in an inhospitable environment such that inappropriate operations could result in harm to a large number of people or result in significant damage to assets or the environment?
  • Does your company provide a commodity without which a vital service would be impaired?
  • Does your company’s operations integrate with others such that a mishap could bring down a network supporting the provision of vital services?

Set 2

  • Could a relatively large number of people be impacted by an operational mishap at your company?
  • Could a significant asset loss be incurred by an operational mishap at your company?
  • Could a significant environmental impact result from an operational mishap at your company?

If you answered yes to any of the Set 1 and any of the Set 2 questions, your organization’s operations could cause what is for you a Black Swan event.

As a leader of a susceptible organization, your next questions become:

  • How can we recognize the rising risk of a Black Swan event?
  • How do we minimize our risk of causing a Black Swan event? and
  • How can we prepare for a Black Swan event now in an efficient, financially responsible way that balances cost and risk mitigation?

To help you answer these questions, we’ve prepared a FREE video training series: Preparing for the Black Swan. During this online training course, you’ll learn:

  • the warning flags of rising Black Swan risk
  • how to develop a healthy safety culture to minimize the risk of a Black Swan event
  • how to responsibly prepare for a Black Swan event through the implementation of protocols for responding to a Black Swan event should one occur, and
  • how to effectively monitor for rising Black Swan event risk

About the Author

Nathan Ives, StrategyDriven Principal is a StrategyDriven Principal, and Host of the StrategyDriven Podcast. For over twenty years, he has served as trusted advisor to executives and managers at dozens of Fortune 500 and smaller companies in the areas of management effectiveness, organizational development, and process improvement. To read Nathan’s complete biography, click here.

Risk Management – Protocols for Responding to Unexpected, Catastrophic Black Swan Events

StrategyDriven Risk Management ArticleBlack Swans events are rare (low probability), catastrophic (high impact) incidents that are seemingly unpredictable, go unrecognized, or are deemed so unlikely as to not reasonably warrant expensive preventive measures. There characteristics include:[wcm_restrict plans=”48989, 25542, 25653″]

  • Occur unpredictably or unexpectedly
  • Are significant in scale and broad in scope
  • Develop rapidly with effects continuing for days, weeks, and even months
  • Present hazards beyond immediate financial risks; jeopardizing people’s lives and long-term health and damaging the environment
  • Involve significant asset damage or loss
  • Typically require significant corporate and/or government resources to effectively resolve

Black Swans are initiated by unintended human error, negligence, malicious actions, or acts of nature.

Why Prepare for a Black Swan Event?

While many think of Black Swan events as rare, in reality, they actually occur with some regularity.

Traditional emergency response plans prescribe methods for responding to predictable events but are unlikely to adequately cover all Black Swan event conditions and situation-management needs. Preplanning provides a framework and guidelines that are readily adaptable to changing circumstances and helps ensure an organization is ready to effectively response should a Black Swan event occur.

An effective response to a Black Swan is one that minimizes impact by limiting the scope and duration of the event.

Protocols for Effective Black Swan Event Response

An effective set of Black Swan event response protocols provides an action framework that can be easily adapted to each unique situation. Such an action set should include:

  1. Recognize the event. Clearly define what constitutes an event and how to report it. Enabling personnel to recognize and report the onset of a catastrophic event is critically important to the timely initiation of the event response protocols
  2. Deploy the organization. Rapid staffing of the on and off-site event response organization, led by a single decision-maker who is supported by a multidiscipline team and appropriate facilities, is important because event containment and resolution is more easily achieved early on and prevents undesired impact growth
  3. Assess the situation. Identify well-defined focal points and desired outcomes for selecting and performing appropriate and efficient response actions. Narrow the response team’s focus to the most important issues with the intention of resolving less critical problems after the event is contained
  4. Identify response alternatives. Define a large body of prioritized alternatives based on their estimated ability to yield a maximum number of desired outcomes. This enables the decision-maker to select the most optimal mitigation strategy given his or her understanding of existing circumstances and provides a set of next-in-line backup plans should the primary efforts to contain the event fail
  5. Select a response alternative. The decision-maker carefully chooses the emergency response actions to be implemented based on his or her understanding of existing conditions; an assessment of the risks to people, property, and the environment; the potential consequences – both positive and negative – of the actions to be taken; and the availability of limited resources
  6. Execute the plan. The response team develops, communicates, and implements the selected response plan; rapidly deploying equipment and personnel resources, robustly maintaining communications channels, continuously monitoring for changing conditions, periodically performing situation reassessments, and conducting decision reevaluations and adjustments as needed until the event is contained
  7. Identify and implement improvements. Critical, ongoing performance assessment at all levels of the organization and the incorporation of lessons learned into decisions, procedures, and training programs is important to sustaining a successful event monitoring and response program

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About the Author

Nathan Ives, StrategyDriven Principal is a StrategyDriven Principal and Host of the StrategyDriven Podcast. For over twenty years, he has served as trusted advisor to executives and managers at dozens of Fortune 500 and smaller companies in the areas of management effectiveness, organizational development, and process improvement. To read Nathan’s complete biography, click here.

Risk Management – Principles for Responding to Unexpected, Catastrophic Black Swan Events

StrategyDriven Risk Management ArticleBlack Swans events are rare (low probability), catastrophic (high impact) incidents that are seemingly unpredictable, go unrecognized, or are deemed so unlikely as to not reasonably warrant expensive preventive measures. There characteristics include:[wcm_restrict plans=”48987, 25542, 25653″]

  • Occur unpredictably or unexpectedly
  • Are significant in scale and broad in scope
  • Develop rapidly with effects continuing for days, weeks, and even months
  • Present hazards beyond immediate financial risks; jeopardizing people’s lives and long-term health and damaging the environment
  • Involve significant asset damage or loss
  • Typically require significant corporate and/or government resources to effectively resolve

Black Swans are initiated by unintended human error, negligence, malicious actions, or acts of nature.

Why Prepare for a Black Swan Event?

While many think of Black Swan events as rare, in reality, they actually occur with some regularity.

Traditional emergency response plans prescribe methods for responding to predictable events but are unlikely to adequately cover all Black Swan event conditions and situation-management needs. Preplanning provides a framework and guidelines that are readily adaptable to changing circumstances and helps ensure an organization is ready to effectively response should a Black Swan event occur.

An effective response to a Black Swan is one that minimizes impact by limiting the scope and duration of the event.

Principles for Effective Black Swan Event Response

Foundational to effectively responding to an unexpected catastrophic Black Swan event is a collection of broadly applicable principles. These principles should be applied during both the preparation for and response to a Black Swan event:

  • Define, establish ownership for, and communicate the catastrophic-event response protocols. Simply put, the time to adopt and train on catastrophic-event management protocols is before the Black Swan event occurs.
  • Establish emergency management goals and values. These provide managers and responders with the objectives needed to rapidly formulate decisions and assess the effectiveness of their response actions – even before a formal response plan is developed.
  • Empower local responders to take action. Enabling responders to act in a manner consistent with the organization’s goals and values and in accordance with established emergency response procedures frequently results in a more rapid containment and resolution of adverse conditions.
  • Provide for parallel planning and execution. This practice enables the development of backup plans to readdress accident conditions should the primary response fail.
  • Identify inventories of financial, personnel, physical, and knowledge resources. Awareness of the availability of financial, human, physical, and knowledge resources and how they can be deployed is critical to an effective Black Swan response.
  • Leverage external perspectives and experience. It is important for those responding to a Black Swan to be receptive to external perspectives and prepared to incorporate these into the event’s management. The lessons learned by others can be invaluable when dealing with unexpected events.
  • Avoid false economy. Apply of all available resources to contain and resolve the Black Swan event instead of pursuing single, minimalist solutions in series.
  • Reject political motivations. Unfortunately, politics can adversely influence crisis response. Therefore, responders at all levels must remain apolitical when combating a Black Swan event.
  • Confront moral and ethical dilemmas. These dilemmas require a principled leader who is dedicated to making decisions based on the well-grounded, predefined event response goals and values.
  • Consider contrarian viewpoints. Such challenges prevent group-think, help prevent logic errors, and generally serve to make decisions more robust.

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Hi there! Gain access to this article with a StrategyDriven Insights Library – Total Access subscription or buy access to the article itself.

Subscribe to the StrategyDriven Insights Library

Sign-up now for your StrategyDriven Insights Library – Total Access subscription for as low as $15 / month (paid annually).

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Buy the Article

Don’t need a subscription? Buy access to Risk Management – Principles for Responding to Unexpected, Catastrophic Black Swan Events for just $2!

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About the Author

Nathan Ives, StrategyDriven Principal is a StrategyDriven Principal and Host of the StrategyDriven Podcast. For over twenty years, he has served as trusted advisor to executives and managers at dozens of Fortune 500 and smaller companies in the areas of management effectiveness, organizational development, and process improvement. To read Nathan’s complete biography, click here.

StrategyDriven Editorial Perspective – Taking Decisive Action

History is replete with crisis so much so that their occurrence can be counted upon with some certainty. Crisis themselves create uncertainty but it is the response or lack of response to a crisis that creates the unnecessary uncertainty that often ripples through the marketplace, government agencies, and society.


”A crisis is a terrible thing to waste.”

Rahm Emanuel
Chief of Staff to President Barack Obama


As suggested by Rahm Emanuel, those individuals and organizations responding well to a crisis garner acclaim. Likewise, those who do not respond decisively are scorned.

Poor crisis management by British Petroleum (BP) and the U.S. government in response to the Deepwater Horizon oil spill in the Gulf of Mexico is evident by the ongoing nature of this catastrophe and the devastation it has caused the people and property of the Gulf States. Examining this crisis reveals several inadequacies in the disaster response:

  • Delay in executing the initial event response – 9 days (time until Obama Administration acknowledges the “spill [is] of national significance”)1
  • Failure to apply all appropriate resources to the event response – ongoing refusal of the Obama Administration to lift the Jones Act restrictions and allow international skimming ships to aid in the oil spill clean-up2, 3
  • Delay in defining and executing on obvious goals – 12 days to begin drilling a relief well to stop the oil spill4
  • Faulted decision-making process – inaccurate assessment of the spill conditions, namely the late recognition of the significance/volume of oil leaking5, 6
  • Lack of leadership and coordination – initial and ongoing confusion between BP and U.S. government authorities as to which organization was in charge of the event response efforts7

Some would argue that not every event can be anticipated and that the Deepwater Horizon accident was one such incident. We would not argue that point. It is unreasonable to expect that every situation and circumstance be fully anticipated and planned for not to mention that such an effort would be cost prohibited. However, when unanticipated circumstances arise leaders must be prepared to act decisively based on their and their organization’s values and beliefs and a set of core emergency response principles. Some of these include:

Values and Beliefs

  • protecting of human life
  • protecting the environment
  • protecting property
  • acting ethically and with integrity
  • minimizing the impact of the event on all parties involved and effected

Core Emergency Response Principles

  • recognizing that an emergency condition exists
  • identifying the leader and the roles and responsibilities for all participants or groups of participants
  • accurately defining the problem in both quantitative and qualitative terms including potential future challenges based on other probable and impactful events
  • identifying all resources (personnel, materials, and equipment) available to support the event response effort
  • defining the desired outcomes consistent with the organization’s core values and goals
  • identifying the several options that will enable achievement of the desired outcomes; including risks (short and long term), costs, and benefits
  • prioritizing options and selecting the optimal solution
  • communicating and executing the chosen solution including contingency measures should the primary approach be ineffective
  • continuously monitoring and adjusting the chosen approach as necessary

The response to the terrorist attack on the World Trade Center on September 11, 2001 and the Tylenol Crisis in 1982 serve as positive examples of values-based emergency responses following core response principles in the absence of pre-defined procedures. The decisive actions by Rudy Giuliani, the then mayor of New York City and the Johnson & Johnson executive team instilled confidence, minimized follow-on consequences, and expedited restoration from their respective event.

StrategyDriven Recommended Practices

For the past several weeks, we have discussed methods for identifying and preparing responses to probable events. The following recommended actions will help ensure leaders are prepared to response to unanticipated events in a manner that minimizes adverse consequences.

Unanticipated Event Response

  1. Clearly define organizational values understood and embodied by all organization members – An organization’s values serve as beacon against which all actions should be aligned and evaluated. Having a clearly defined set of documented organizational values provides responding executives and managers with a quantifiable basis against which to identify and evaluate response actions.
  2. Establish a commitment to adhering to the organization’s values over cost – Defined values are of little value unless organizational executives, managers, supervisors, and employees are willing to act on them even if doing so incurs additional cost. Gaining such commitment requires ongoing reinforcement to the principle of values over cost by all executives and managers during normal operations and event response periods.
  3. Define and train on a decision making and unanticipated event response processes – Individuals understanding and committed to the organization’s values may still not be capable of translating these into the needed timely response actions without decision-making and event response training. Such training should be periodically provided to all individuals at all levels of the organization.

Final Thought…

Decisive leaders are not impulsive. Quite the contrary, impulsive acts often diminish emergency response effectiveness. Decisive actions are timely, well thought out and consistent with the individual and organization’s values and beliefs. These actions follow the core emergency response principles. Their logic and structure are easily recognized, understood, and accepted by those implementing them, the public, and other interested stakeholders.

Final Request…

StrategyDriven Editorial Perspective PodcastThe strength in our community grows with the additional insights brought by our expanding member base. Please consider rating us and sharing your perspectives regarding the StrategyDriven Editorial Perspective podcast on iTunes by clicking here. Sharing your thoughts improves our ranking and helps us attract new listeners which, in turn, helps us grow our community.

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Sources

  1. “Timeline of Gulf oil spill, government response,” The Associated Press, The Boston Globe, May 8, 2010 (http://www.boston.com/news/nation/washington/articles/2010/05/08/timeline_of_gulf_oil_spill_government_response/?page=1)
  2. “U.S. not accepting foreign help on oil spill,” Josh Rogin, Foreign Policy, May 6, 2010 (http://thecable.foreignpolicy.com/posts/2010/05/06/us_not_accepting_foreign_help_on_oil_spill)
  3. “Jones Act Slowing Oil Spill Cleanup?” Brian Wilson, Fox News, June 10, 2010 (http://liveshots.blogs.foxnews.com/2010/06/10/jones-act-slowing-oil-spill-cleanup/)
  4. “Spill relief well draws scrutiny, fears,” Greg Bluestein and Jason Dearen, Associated Press, June 13, 2010 (http://www.msnbc.msn.com/id/37674027/ns/disaster_in_the_gulf)
  5. “Timeline of Gulf oil spill, government response,” The Associated Press, The Boston Globe, May 8, 2010 (http://www.boston.com/news/nation/washington/articles/2010/05/08/timeline_of_gulf_oil_spill_government_response/?page=1)
  6. “Size of Oil Spill Underestimated, Scientists Say,” Justin Gillis, The New York Times, May 13, 2010 (http://www.nytimes.com/2010/05/14/us/14oil.html)
  7. “Gulf Cleanup of BP Oil Foiled by Leadership Confusion (Update1),” Jim Efstathiou Jr., Bloomberg Businessweek, June 10, 2010 (http://www.businessweek.com/news/2010-06-10/gulf-cleanup-of-bp-oil-foiled-by-leadership-confusion-update1-.html)

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