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In risk management, the black swan event is well-known term related to unknown risks that was introduced by Nassim Nicholas Taleb, a finance professor. He argued that black swan events are impossible to predict due to their extreme rarity, but they have catastrophic consequences.

 

As illustrated in this picture, the black swan event is unknown unknowns.

• Known knowns: Things we are aware of and understand. We know and understand about risks. For example: Rising labor and material costs. Known knowns are not RISKS! But these facts and requirements with known amount of work. Hence, they are addressed as part of project scope.
• Known unknowns: The risks that can be identified, but the outcome of which may not be initially clear. We know that the risk exists but can't accurately quantify their potential impact. These are classic risks of what you can see as project manager most likely see. Such as: dealing with vendors is such a risk for vendors do not always deliver on what they promise.
• Unknown Knowns: These are hidden facts. Because they are not known (unknown), hence they are hidden from us. But someone else within the organization may know about it and also know the amount of work needed.
• Unknown unknowns: risks that can’t be foreseen. In this case knowledge does not exist within the community or the sphere of influence of the risk manager. Major accidents, natural and man-made cataclysms and the recent case COVID-19 pandemic fall into this category.

Black swan-risks are much more difficult to manage, because by definition You can never find it unless and until this risk occurs, and it is an emergent risk that you cannot predict even with the best risk processes. Black Swan is a risk we never thought of, never imagined, and we did not predict.

From the picture it can be seen that the Black Swan is on the far right, which is when this risk occurs, you only have a little time to react while the stake or loss that will be gained is too high.

In general, Black Swan emerges from game-changers and paradigm shifters, such as the launch of an invention or product that disrupts existing patterns or the use of technology from previously unexpected sources, or rapid changes in digital technology.

Like risks, Black Swan is also not always negative, either positive or opportunity. There are 3 characteristics of the Black Swan, namely: Outlier - outside the system, has an extreme impact, and cannot be explained or predicted. Some examples of this risk are: Development of the commercial internet in 1982 and the prevalence of social media use today; The fall of the Berlin Wall in 1989, and the subsequent collapse of communism; The 9/11 terrorist attacks in New York in 2001 that led to increased aviation security; The 2008 global financial crisis was followed by tighter regulations; Brexit - Great Britain exit from the European Union; Online transportation which has led to reduced interest in conventional transportation such as taxis, “ojek pangkalan” and public transportation, changes in consumer behavior who prefer to shop online which have an impact on conventional retail.

One example of the Black Swan that is now being experienced by not only Indonesians, but the rest of the world is the COVID-19 pandemic. There are some practitioners who say that this pandemic is not Black Swan, arguing that this virus is not something unknown (it's not an unknown) because there have been viruses that have occurred, namely MERS, SARS, H1N1, and others. So, risk managers should have included this pandemic on their risk list. But for me, without needing to debate whether this pandemic is black swan, gray swan or dragon-king (terms for an event that has a very extreme impact), what is certain is that COVID-19 is a game-changer that makes new normal, which is what happened with very fast and its impact throughout the world, not only developing countries, but rich and developed countries. Not only big businesses, but also micro, small and medium enterprises. Almost all levels of society, industry, government are affected by this pandemic.

A Black Swan event or situation that is the culmination of a state that has evolved over time and is a game-changer for those who experienced it or were affected by it. For those who witness or experience this situation, the world never looks the same again and we must adapt to The New Normal.

Source:
Veronika A. (2020), “Navigating Thru the Black Swan event”, Jakarta.