Scenarios, Black Swans, and Crisis Communication

During 2004 and 2005, I was invited to undertake a world tour talking about Risk and Uncertainty (as a Distinguished Lecturer for the Society of Petroleum Engineers).?

Part of my presentation was the utilization of scenarios, made famous by Shell in the 1970s - to be prepared for the "high impact/low likelihood" events such as pandemics, terrorist attacks, or oil price fluctuations. One of my questions to the audience - is, "if the oil price drops by 50%, are you a buyer or a seller?"

During this tour (in 2005), I was introduced to the fine work using scenarios - "Does the pandemic occur tonight, next week, or in ten years?" undertaken by Professor Michael Osterholm (University of Minnesota). It was published in his paper,?"Preparing for the next pandemic"?(Foreign Affairs, July 2005). He also wrote the 2017 book?Deadliest Enemy: Our War Against Killer Germs.?

He made two currently pertinent observations:

1."A pandemic is coming. It could be caused by H5N1 or by another novel strain. It could happen tonight, next year, or even ten years from now".?

2. "Can disaster be avoided? The answer is a qualified yes. Although a coming pandemic cannot be avoided, its impact can be considerably lessened. It depends on how the world leaders - from the heads of the G8 to local officials - decide to respond. They must recognize the economic, security, and health threat that the next influenza pandemic poses and act accordingly".

In 2006, the World Economic Forum's Global Risk Network developed a scenario in 2006 New York. It illustrated the possible impacts on business, the financial system, and political and economic conditions that could follow from the emergence of a pandemic. It also explores the role of media "infodemics" in rapidly spreading inaccurate or incomplete information to amplify or downplay the effects of the risk event (often due to political agendas). These so-called "infodemics" dominate the messaging in today's world, especially in media talk shows and social media outlets.

Recently (in 2016), Professor Yaneer Bar-Yam continued this dialog on global epidemics in his paper,?"Transition to Extinction: Pandemics in a connected world,"?followed up by a subsequent presentation specific to Coronavirus (by Joseph Norman, Yaneer Bar-Yam, and Nassim Nicholas Taleb), in January 2020. A more recent YouTube interview with Taleb should be required to watch for all the risk aficionados.?

Taleb, in his book "The Black Swan: The Impact of the Highly?Improbable,"

In 2007 said:

"As we travel more on this planet, epidemics will be more acute - we will have a germ population dominated by a few numbers, and the successful killer will spread more effectively. "

and,

"Once again, I am not saying that we need to stop globalization and prevent travel. We just need to be aware of the side effects, the trade-offs - and few people are. I see the risk of a very strange acute virus spreading throughout the planet."

A Black Swan is a metaphor that describes an event that comes as a surprise, has a significant effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. The term is based on an ancient saying that presumed black swans did not exist – a saying that became reinterpreted to teach a different lesson after black swans were discovered in Australia.

The current Covid-19 pandemic is a black swan (high impact/low probability) event, even if we have been periodically hit by unexpected diseases for our whole history. But it?has not?"blindsided the world" as described by President Trump (9 March 2020), as this risk has been identified by so many beforehand.?

As we no longer believe that these "black swans" are here as God's punishment for our sins, the other alternative is that they must have been caused by biological infection - or in some people's eyes - have spread because of the incompetence of scientists and politicians.?

We usually hold the leader responsible not for causing the virus but for not acting quickly enough to protect us.

?This has led most of our leading politicians and world corporate leaders (with potentially deadly ramifications) to properly communicate these risks.?

Some outstanding examples of positive messages from some leaders - the New Zealand Prime Minister Jacinda Adern after the Christchurch mosque shooting in May 2019 and Singapore Prime Minister Lee Hsien Loong's address about the current Covid-19 crisis last month.

Thus the effects of the Covid-19 outbreak are certainly a candidate for scenario planning, if not conventional quantitative risk analysis. Yesterday (10 March 2020), we developed scenarios for a large Asian shipping group, using a 2 x 2 matrix. One axis denotes the spread and effects of Covid-19 - and supply chain disruption on the other axis.

The use of scenarios and proper risk communication to stakeholders is critical to avoiding loss, whether in human lives or in value to corporations and individuals in these difficult to predict events - remember this will not be the last epidemic, nor the previous oil price crash.?