In an increasingly interconnected world, the potential for unexpected, high-impact events – often referred to as "black swans" – has become a critical concern for governments, businesses, and individuals alike. We have witnessed many of these events in our lifetimes, and we’re experiencing more of them as our world becomes increasingly interconnected and global. Even though black swan events are challenging to predict, there is a lot we can learn from them that can help us strategically leverage our limited resources to strengthen the resilience of government and society.

What are Black Swan Events?

The term "black swan" describes events that are rare, have an extreme impact, and are often rationalized in hindsight. Recent history provides several stark examples – from the global financial crisis in 2008, triggered by the collapse of the U.S. housing market due to hidden systemic risks in the global financial system; to the COVID pandemic of 2020 that caught the entire world largely unprepared and ill-equipped to respond; to the Suez Canal obstruction in 2021 that disrupted global trade and supply chains for months afterward.

When it comes to black swan events, it’s important to understand the many factors at play that contribute to both their occurrence and the turmoil they cause. Our global interconnectedness and financial incentivization of efficiency means we have an intricate web of trade, finance, information flow based on processes and infrastructure that have been optimized in ways that bring immediate benefit with the tradeoff of accepting accumulating risk. So, a local disruption can quickly morph into a global crisis. Within this web, there are systemic risks – meaning, the failure of a single component can trigger widespread impacts across a population or system, as we saw with the 2010 Flash Crash of the U.S. stock market, or the 2021 outage of Facebook, Whatsapp and Instagram, affecting billions globally. Finally, Chaos Theory (an umbrella concept which includes the famous Butterfly Effect) illustrates how small changes can lead to large-scale and unpredictable consequences. In complex global systems, seemingly minor events can trigger cascading effects with far-reaching impacts.

These types of events are important for governments in particular to understand and plan for because agencies will be both affected by the inevitable next one and involved in our national response.

How Agencies Can Identify and Prioritize Black Swan Risks

Given limited resources, it's crucial that America’s agencies develop strategies for identifying and prioritizing potential risks. Those strategies should include activities like:

1. Horizon Scanning: Systematically survey the environment for emerging issues, trends, and weak signals that might indicate future disruptions.

2. Scenario Planning: Leverage knowledge of past events, and experts from diverse fields, to develop a range of plausible future scenarios to identify potential vulnerabilities and prepare for various outcomes.

3. Stress Testing: Regularly test systems, organizations and processes against extreme scenarios to identify weaknesses.

4. Resilience Prioritization: Evaluate identified risks based on their potential impact and likelihood. Consider the potential scale of disruption, cascading effects, and organizational capacity to respond. Prioritize risks that pose the greatest threat to critical operations or strategic objectives, while also considering the feasibility and cost-effectiveness of mitigation strategies.

The Goal: Build Resilience

While it's impossible to predict every black swan event or to totally eliminate risk, agencies can build resilience so that they are better positioned to withstand their shock.

This involves diversifying, specifically avoiding over-reliance on single systems, suppliers, or markets. Agencies should also focus on redundancy, building spare capacity and backup systems to ensure continuity during crises. Agencies can foster adaptive capacity and build organizational cultures, processes and systems that can more quickly adapt to changing circumstances. (This also helps with integrating new technology and processes more nimbly.) Decentralization can help distribute decision making authority to enable faster responses to local conditions and increase survivability. Improved transparency and information sharing can enable quicker identification and response to emerging risks, especially as machine learning and AI models are leveraged to extend and enhance existing capabilities. And, finally, agencies can implement continuous learning systems and treat each disruption as an opportunity to enhance resilience.

In our complex, interconnected world, black swan events are inevitable. While we cannot predict or prevent every possible disruption, we can enhance our ability to identify potential risks and build systems that are not just resilient but also anti-fragile – capable of adapting and even thriving in the face of shocks. By understanding the nature of these events and implementing strategies that foster resilience and adaptability, agencies can protect against known risks while also turning the challenge of black swan events into opportunities for growth and innovation.