Yes, they’re all creatures, but they are also metaphors describing different disruptive risks. While each of these risks have their own unique characteristics, all of them can have major impacts on the profitability, competitive position and reputation of a business.
The Black Swan
Black Swans are the ‘unknown unknowns’; events highly improbable, difficult to predict with massive impact. Until Dutch explorers discovered black swans in Australia in 1697 A.D., the western world had been using it as an idiom for the impossible since atleast the 2nd century.
The invention of the internet and the 2008 economic crisis are good examples.
The Grey Rhino
Grey Rhinos are ‘known unknowns’; probable, high impact trends that are clearly observable, yet often ignored. While the impact is clear, the inaction in addressing an oncoming Grey Rhino roots from the lack of awareness on the subject.
Examples can be Climate Change, Pandemic, Blockchain and Artificial Intelligence
The White Elephant
White Elephants are ‘known knowns’; existential risks with obvious impacts, but difficult to address due to emotional circumstance. Albino elephants deemed sacred, forbidden for labor costing high upkeep, had been gifted by Monarchs of Siam to intentionally ruin people who fell out of their favor.
Examples include a money losing venture endeared by the Chairman.
The Black Jellyfish
Black Jellyfish are ‘unknown knowns’; unforeseen risks arising from known phenomena. Things we think we know and understand, but turn out more complex and uncertain than initially expected.
In 2013, while the rapid increase in Black Jellyfish populations was clearly observed, nobody could have predicted that they’d shut down Sweden’s Oskarshamn Nuclear Powerplant by clogging its water inlets.
Real world risks
It can be easy for a board or policymakers to brush off a disruptive risk as a black swan; saying that it was unpredictable and therefore nothing could be done. To address black swan events, an organization’s prediction skills can be improved to reduce the risk of not knowing. The improvement of such prediction skills is very much within the power of policy makers.
It is important to highlight the importance of addressing Gray Rhinos because we have been ignoring them for far too long and this can have costly consequence.
A lot of decisions have to be made in the area of disruptive technologies like the Blockchain; a major Gray Rhino. Relevant laws and regulations need to be formulated, and the impact of these technologies must be assessed to reduce risks and to take advantage of opportunities presented. These mega trends cannot be ignored as they are the reality of today’s world.
Another major Gray Rhino, Climate Change, will impact us far worse than other countries because of our geography. We need to understand the impact of climate change on our businesses, and our nation, to devise mitigating solutions that will help build resilience and sustainability. How do Maldivian businesses address Climate Change risks? Not nearly enough! It is too easy to ignore this risk because it is many are unaware of the causes of this risk, making it comfortable and easy to ignore it.
There are lots of risks that can be categorized as White Elephants in this country. Corruption, nepotism, bribery, fraud and abuse of power are major White Elephants in the room we fail to address. Everyone knows a this is happening but fail to do much about it due to fear or pessimism.
So how do we address these risk critters?
The challenge in dealing with Black Swans is prediction. In order to address the Black Swans we need to develop scenario analysis, early warning indicators and contingency plans. The goal is to develop preparedness.
The challenge with the Grey Rhinos is inertia. Processes for innovation, experimentation and change management need to be addressed. The goal here is to develop agility.
The White Elephants present the subjectivity challenge. In order to address it, we need to Invest in good governance, company culture and values, objective advice and crisis management. The goal here, is to improve decisiveness.
The Black Jellyfish present a scale challenge. In order to address it, small factors need to be examined with scenario analyses to determine their impact on a larger scale and upon multiple overlapping systems over time.
It is important to understand these different types of disruptive events so that informed decisions can be taken. These creatures of risk can also be used to address the Covid-19 Pandemic and deal with its different stages as they unfold.
Need help with Enterprise Risk Management?
If you require help in implementing ERM in your organization, let the expert consultants at Achievia guide you through the process and provide you with all the necessary tools, techniques and expertise to develop a robust ERM system. We are very passionate about what we do, have experience in implementing ERM systems and are committed to helping Institutions and businesses to reach world class in their risk management capabilities.
