Taming Black Swans

 

I have a customer who shared with me an ‘unexpected’ and unforgettable experience that he had that almost ruined his career. A few years back, he engaged a vendor to develop a web application that was meant to be used by internal employees. Everything went fine and they had gone through the UAT smoothly. The shocking news came in on the eve of the go-live day that the key engineer working on the project had met with an accident and was unavailable to work on the migration for the application from staging to production server. Eventually, the go-live date had to be pushed back a month to allow the vendor to find a replacement and conduct essential knowledge transfer. My poor customer had to write a long report to explain this ‘unexpected’ hiccup to his management.

I believe most of you have been through similar ‘unexpected’ situations that caught you totally off-guard. You might have anticipated, predicted and planned for whatever you and your team can think of and yet, you would still miss out one or two critical items that pounced back on you when you turned the corner. We deal with two types of risk in projects, the known and the unknown risks. What I have been talking about so far are the unknown ones which usually jump up and haunt us in our most unprepared circumstances.

In his book “The Black Swan”, Nassim Nicholas Taleb characterized a specific type of events that resemble what I have mentioned above. According to Taleb, a Black Swan is a metaphor that represents an extremely high impact, retrospectively predictable, and rare (outlier) event that is beyond the realm of normal expectations. In general, most people expect all swans to be white based on past experience. Therefore, the appearance of black swans is a surprise to many people. However, we tend to concoct explanations for them after the fact, which makes them appear more predictable, and less random, than they actually are. But in reality, black swans are not predictable and they are not necessary all negative. Below are some examples of black swans that have great impact in history –

• World War I 1914
• Wall Street Crash 1929
• World War II 1939
• Oil Crisis 1973
• Black Monday 1987
• 9/11 Terrorist Attack 2001
• Indian Ocean Tsunami 2004
• Stock Market Crash 2008
• Japan Nuclear Crisis 2011

Can you imagine one of those black swans above paying you a visit in your project? You would probably dismiss this thought with a sneer as you are confident that it is highly improbable for the black swans to occur. The problem with us is we put too much emphasis on things we already know and give very little attention to things we don't know. In some cases, we even overestimated ourselves by thinking that we know something that we actually don’t, thereby creating a false sense of reality. This is obviously a key weakness in managing project risks which explains why the black swans always manage to catch us unprepared. Below are some tips that may help you to survive through the black swan events:

1. Be Humble: The first thing is to acknowledge that you are not omniscient. Avoid relying too much on past experience and do not try to predict black swans. Example, never reuse an old risk register for your new projects and assume that all the risks are the same.
2. Stay Skeptical: Do not take facts at face value. Remember that absence of proof is not proof of absence. Be curious and stay skeptical by challenging the norms. Example, form a risk council in the project team to play devil’s advocate to scrutinize and challenge all decisions made in the project.
3. Improve Immunity: Identify areas of vulnerability earlier and reinforce them. Prepare yourself and your team earlier for both positive and negative black swans so that when they come, you are ready to handle them. Example, never just monitor the risks in your risk register. Work on and mitigate the risks with the aim of getting them out of the risk register eventually.
4. Remain Transparent: Do not sweep your dirty laundry under the rug. The more and the longer you try to hide, the messier it will be when it is exposed eventually. Exposing it earlier will help to minimize the impact and buy you more time to deal with it. Example, publish your risk register and welcome others to comment (or even criticize) it openly.
5. Expand Options: Avoid dependency on single source of supply by providing more flexibility and agility in your projects. Example, always work with multiple vendors to avoid being held hostage by a single dominant vendor.

In short, the key to tame the black swans is not to try to predict them, but to build robustness into your projects and prepare your team to expect the unexpected. As Taleb has nicely explained – “It's like saying a bridge is fragile. I can't predict which truck is going to break it, so I have to look at it more in a structural form and reinforce its weak points.”