On the Subject of the Paper on “Black Swan Risks” in January PM World Today

5 January 2011

Dear Editor,

Whilst Bob Prieto’s paper on ‘Black Swan Risks’ is a valuable discussion on the non-linear nature of major project and program risk exposure he completely misinterprets N.N. Taleb’s concept of Black Swans.

Black Swans are the unknowable risks – events or outcomes that you cannot possibly predict or foresee until after they occur.  These are best classified as unknowable unknowns. There was absolutely nothing in 18th Century European knowledge or experience that could have foreseen the existence of Black Swans until after they were discovered.  Interestingly though, the 18th Century Australian Aborigines would have had a completely different view of the world.  If N.N. Taleb was an Aborigine his book would have been entitled ‘White Swans’……  Context is important.

However, none of the major examples cited in the paper are ‘Black Swans’, they were completely foreseeable and predictable if people had turned their mind to the events in question. Factory fires are common place. The risk decisions on New Horizon were based on a series of flawed assumptions. In both cases applying accepted good practice would have eliminated the disaster and in both cases, management’s trade off between expediency and risk was based on an incomplete set of information.  The ‘unknown unknowns’ that were not considered were in fact ‘knowable unknowns’.  The reason they remained out of consideration was either a process failure or the lack of appropriate insight, a skills failure.

The challenge of effective risk management is to turn as many of these knowable unknowns into known unknowns as is practical. Knowable unknowns are the possibilities we could foresee if sufficient skill and care is applied to the situation ‘as-is’. Once the risk is identified (known) we then have the tools for their management.

It is too easy to classify manageable ‘knowable unknowns’ as ‘Black Swans’, and then suggest they were unforeseeable, simply because insufficient work was done to understand the actual situation. Black Swans should not be used as an excuse for ineffective risk management.

Pat Weaver, PMP PMI-SP
Mosaic Project Services Pty Ltd.
Melbourne, Australia

AUTHOR’S RESPONSE

Taleb describes Black Swans as an event with the following three attributes. “First, it is an outlier, as it lies outside the realm of regular (emphasis added) expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.”

So in hindsight, one can always argue that a Black Swan was a knowable unknown to use Pat Weaver’s terminology, and this is the case most certainly with September 11th which Taleb uses as an example of a Black Swan event and an attack which many have classified as knowable, given prior attempts to bring the buildings down and prior use of suicide planes.

Most importantly, I think it is important to consider Taleb’s first point, namely an outlier outside the realm of regular expectations. In the example in my paper, the factory fire may have been a reasonable event to be considered but in complex global supply chains a singular fire at a component level supplier would not be one generally anticipated to eliminate a firm from a major market. At that time it was an outlier, outside the realm of regular expectations.

Increasingly large programs introduce levels of complexity that provide convenient territory for Black Swans to breed and nest. They lie outside the realm of regular expectations. Pat Weaver’s point on turning as many knowable unknowns into known unknowns is one I could not agree more with and one which I believe is aided by a program management approach that focuses on the “white space” between projects in order to ensure an “outcome” versus a project approach which takes a more limited scan of the external environment and its impacts on the project’s ability to produce certain “outputs”. In a program context, good risk management is about limiting the neighborhoods where Black Swans can be by more rigorously examining these potential breeding and nesting grounds (knowing more) and most importantly building in resiliency.

Finally, I agree with Pat Weaver, that “Black Swans should not be used as an excuse for ineffective risk management.”

Bob Prieto
Princeton, New Jersey, USA

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