Implement Black Swan Modeling to Avoid Government Catastrophes

Implement black swan modeling to avoid government catastrophes

Black swan events are inherently unpredictable — and they’re all around us. From responding to cyberattacks, military conflicts and natural disasters to handling issues in environmental sustainability and third offset strategy, federal leaders need a new response strategy predicated on vulnerability and a willingness to explore.

Historical data cannot foresee these new and emerging threats. Major terrorist attacks on U.S. soil were never a part of our history, but 9/11 still happened. Other threats are unavoidable. In nuclear power, for instance, one industry expert describes unforeseen events as “inevitable.”

To counter these risks, federal leaders need to open their thinking to the unknown. They need to adopt black swan modeling.

The Power of Black Swan Modeling

Economist Nassim Nicholas Taleb’s black swan theory is a metaphor. The world once thought only white swans existed. Black swans were a presumed impossibility — until somebody saw one. In other words, an unforeseen event changed a long-held school of thought.

Black swan modeling forces innovative ways to think about planning for and mitigating major issues in government policy. It fundamentally rejects theories based on historical, data-driven predictive models and instead embraces the principle that what we don’t know is often far more relevant than what we do know. To adopt this principle, federal leaders need to accept vulnerability.

Vulnerability is not a synonym for weakness. For leaders, it means a willingness to think, explore and reflect without having a definite answer. Former General Electric CEO Jack Welch said, “When you are an individual contributor, you try to have all the answers. When you are a leader, your job is to have all the questions.” Federal leaders must impart this logic to their organizations.

Through vulnerability and unconventional thinking, leaders open the door to creativity in problem resolution and risk mitigation. By promoting this behavior, federal leaders can establish a new generation of innovative research and development and test and evaluation.

How to Build an Effective Black Swan Model

We should channel the spirit of John F. Kennedy’s pledge to put a man on the moon and maximize the talents of the millennial generation to explore uncharted territory. To apply this approach:

Plan for potential challenges, issues and risks. Every “what if” generates different scenarios, problems and potential obstacles and leaders must reckon with all of these. A Department of Defense leader, for instance, should scenario-plan around not only “art of the possible” threats, but also “art of the impossible” unconventional scenarios.

Organizations must understand normal and historical models, of course, but they must also consider improbable, black swan scenarios for which there may be no historical data. Sometimes, these prove more plausible for predictive “unmodeling.” Leaders must address multiple risks, prioritize them by magnitude, and ensure strategic planning is in place to deal with any eventuality.

Leverage ideas from nontraditional sources. Next, leaders should turn to unconventional experts and concepts to process mitigation strategies, risk control and impact strategies and win strategies. When dealing with terrorism threats, for instance, we might learn from biological insights on the swarm theory of bees. How does their behavior align with that of terrorist cells?

This interdisciplinary approach can yield major new information. Investigators looking at black swan events such as financial crises and terrorist attacks often find that they already had the information necessary to predict those events, but it was spread across organizations and never brought together. By leveraging the unconventional, leaders can boost their predictive powers.

Plan, do, check, act. Then, rinse and repeat. Airlines don’t ignore accidents. They conduct thorough reviews and update systems and practices to make future flights safer.

Government agencies must adopt the same formula. Test, try, and learn from failure. Leaders can’t “set and forget” strategic planning; they need to keep evolving, learning, exploring and applying. It is only through continual effort that we will keep ourselves safe and mitigate the threats we face.

Without a strategic plan, an organization is fragile. But an “anti-fragile” organization will thrive when facing a black swan incident because it knows how to navigate events that are not understood. Our federal government cannot fall prey to fragility. We need to learn how to work and take risks in the dark.

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