Getting your Trinity Audio player ready...

Author: Andrew Hosie

null

Businesses must become increasingly nimble to adapt to the rapidly changing complexities of the world, but for even the most prepared organizations, it's reasonable to expect that a loss could occur. What's not reasonable is to expect a catastrophic loss that could threaten an organization's ability to survive — a black swan event.

The rise of AI, geopolitical instability, the speed of social media reporting and rapid global evolution are exposing businesses to never-before-seen risks and increased reputational harm. However, there are options to help anticipate and manage these challenges so organizations can both navigate uncertainties and thrive amid volatility.

What are black swan events?

Black swan events are rare, hard-to-predict occurrences that impact businesses, economies and societies across a potentially global scale. The 2008 financial crisis, World War II, 9/11 and the global COVID-19 pandemic are all examples of black swan events, when a devastating event suddenly brought severe or even global consequences.

Regardless of the service or sector, these events reveal overlooked risk areas for all organizations. Standard risk management practices typically don't account for events beyond the realm of normalcy, which can significantly impact an organization's operations, finances and reputation. It's crucial for businesses to understand and prepare for these rare and unpredictable events.

Characteristics of Black Swan Events

  • Unpredictability: These unforeseen, rare events can't be easily anticipated using standard forecasting methods.
  • Major impact: They have significant, often devastating consequences for businesses, industry sectors, economies and societies.
  • Retrospective predictability: After the event occurs, it is often rationalized as having been predictable, despite its initial unpredictability.
“
Understanding your organizational exposures and overlaying a risk management framework that works for you should be a priority.
Andrew Hosie, senior vice president, National Sales and Practices leader, Canada and Caribbean

Holistic risk management can help businesses survive black swan events

Gallagher's CORE360® approach to risk

Gallagher CORE360® is a comprehensive risk management approach designed to help organizations effectively navigate black swan events. It offers a holistic risk assessment to identify vulnerabilities, tailored insurance solutions and strategic risk mitigation plans, including contingency and crisis management protocols.
Gallagher understands the ever-changing environment we're in. With the rise of technology, geopolitical instability and the rapid pace of global evolution, businesses are increasingly exposed to unforeseen risks. While these risks can present numerous challenges, we recognize that the ability to anticipate and effectively manage them is crucial. By doing so, organizations not only navigate these uncertainties but also thrive and succeed in the face of volatility.

The world we operate in doesn't stand still, nor should an organization's approach to measuring risk. It's critical to constantly evaluate and take a total cost of risk approach.

Typically, we use four quadrants to help organizations plan for and manage potential risks:

  • Strategic risks affect long-term goals and objectives of an organization, including market changes, competition and innovation.
  • Financial risks are related to the financial health of an organization, including credit, market and liquidity risk.
  • Operational risks are associated with the day-to-day operations of a business, including supply chain disruptions, human errors and equipment issues.
  • Hazard risks arise from natural or man-made hazards or disasters, including earthquakes, floods and hurricanes.

However, it's important to consider a fifth source when categorizing risk — people risks can occur due to the action or inaction of personnel.

Employees are our greatest asset, and while there's potential for risk through their actions, they also can limit risk triggers through proactive risk management, culture and their empowerment to manage or avoid risk from within.

The key is to understand your organization and implement a risk management framework tailored to your needs. Using a thorough risk management approach will help you identify, assess and plan for black swan events, and involving your employees in the process will improve your organization's ability to prevent a loss or limit its severity.

Author Information