There are some forces of nature you just can’t predict. Tornados, flooding, earthquakes—they’re not personal, they just happen. And no matter what you do, there’s nothing you can do to actually prevent the ground from rumbling. The only thing you can do is prepare and hope you can avoid them.
“Black swans” (events of occurrences that deviate beyond normal expectations and are difficult to predict) can happen. Markets can tumble. Investors can go under. New products can launch that render yours unimportant. Many factors go into success. And sometimes it can only take a strange occurrence to throw you off the path to success.
So how do you avoid a problem you can’t even see coming?
According to the MIT Sloan Management Review, your best safety precaution is, perhaps not surprisingly given the source, data. And not just some figures or models to back up what you want to do. Their research suggests “by exploiting many types of data, managers can help prevent (or at least contain) the damage related to black swan events and other risky blind spots.” Sounds hopeful, right? Not so fast. It’s going to require a little work.
Not Experience or Intuition
The Sloan study found that—contrary to popular belief—business experience did little to help people avoid being blindsided. That can be tough news to hear if you’re someone who’s put in years of work and knows his industry inside and out. And intuition won’t get you far either no matter how much you like to listen to your gut.
Rely on the Data
What is effective, according to the Sloan study, is integrated data that will point out potential risks. In fact, in laying out the stages of risk analysis, researchers found that only data yielded more reliable results than anything else.
- Intuitive – no formal methods used.
- Qualitative – risk assessments are based on expert opinions
- Quantitative – some data is collected and used to derive Key Risk Indicators.
- Semantic – unstructured data, like log books or blogs reflecting user experience, is analyzed.
- Integrated – data from various sources is integrated into a coherent risk management system.
This list provides a ladder to understanding just how sophisticated your “black swan” contingency plan needs to be. And since, as the Sloane study says, “black swan events are ‘giving way to shades-of-grey’ swans”. Predictions like that are enough to start us planning no matter how distant the possibility may seem.
The Covid Pandemic derailed many of us in 2020. But now we know what our businesses can withstand. Take the time to prepare for the next black swan by developing a data driven business. You never know when a black swan may strike again.
To Your Continued Success,
Luis Raul Scott, Jr.