The “once-in-a-generation” events of late have opened companies’ eyes to the importance of effective risk planning and management, and the vulnerability of their supply chains.
Coined by statistician Nassim Nicholas Tayeb, a “black swan” is a rare and unpredictable event that has a catastrophic impact on businesses and industries. Its inherent low probability of occurrence, combined with a high potential impact, makes it difficult to prepare for.
Nevertheless, 65% of companies globally operate at a basic level of risk management that can be effective against known risks, such as supplier bankruptcy, but not those that are unknown or difficult to predict. And, thanks to increasing global interconnectedness, geopolitical tensions and other sources of disruption, black swan events are increasing in frequency.
The long-term effect of a black swan event can be devastating to a company, and even entire economies. Among the most significant impacts are financial loss resulting from damage to infrastructure, less demand for a product or service, shortages in materials or parts, and lengthy delays in freight transportation.