How can businesses be equipped for ‘black swan’ events?

Ankita Krishnan

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    In risk management, we often come across the term “black swan”. A black swan is an unforeseen occurrence that goes beyond what is often anticipated in a situation and might have very negative impacts. The likelihood of the event occurring might be very low, but the impact is very high, or even catastrophic. Basically, it is an outlier that carries an extreme impact. Of late, ‘black swan’ has become a generally accepted term to describe low probability, high-impact events.

    Some of the examples of black swans in the past are the Dotcom crash, the 1997 Asian financial crisis, Brexit, the 9/11 attacks, the 2008 global financial crisis and the Fukushima accident. The most recent addition to the list is the COVID pandemic though some might debate that such worldwide pandemics were in existence since a long time.

    The following strategies are some that businesses could employ to prepare for black swan events.

    • Crisis Management Plan (CMP) – Organizations need to have a Crisis Management Plan (CMP) which outlines how to respond to a critical situation that would negatively affect an organization’s profitability, reputation, or ability to operate. Responsibilities for addressing the press or public, and communicating with vendors, employees etc. are some of the important topics that should be covered in a CMP.
    • Business Continuity Plan (BCP) – A business continuity plan (BCP) is a document that contains the vital details a business requires to keep running in the case of an unanticipated occurrence. The BCP outlines the fundamental operations of the business, points out the systems and procedures that must be maintained and provides instructions on how to accomplish that. Basically, all organizations need to start by asking themselves the million-dollar question of ‘What happens to the business if we cannot access our corporate headquarters or place of work?’
    • Disaster Recovery Plan (DRP) – A disaster recovery plan (DRP) maps out the process of resuming normal business operations, reconstructing, or salvaging vital and other important records and equipment, and becomes a guide for all employees during and after a disaster.
    • Employee Training – It is not enough that organizations formulate a well-defined Crisis Management Plan or Business Continuity Plan or Disaster Recovery Plan. Employees should be trained in various scenarios, and their respective tasks in times of crisis should be clearly communicated.
    • Monitoring world events – It is the duty of top management to track trends across the world. This helps in identifying emerging risks and the need to modify the impact and/or probability of already identified risks.

    Bottom Line

    Risk management is complicated by black swans, particularly given how quickly technology is evolving. However, such revolutionary advancements in cutting-edge technology increase our capacity for analytic forecasting and attempt at black swan event prevention.

     

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