Using grey swans to mitigate risk

Strategic planners are facing increasing challenges anticipating and mitigating the potential impact of external threats. Global environmental, political, economic and social patterns are in a period of rapid and volatile change. New technologies such as autonomous vehicles, the internet of things, artificial intelligence, 3D printing, synthetic biology and advances in materials science are accelerating the pace of change. Meanwhile institutional and organisational capabilities take a long time and a lot of money to develop.

This uncertainty increases the risk of strategic shock. Strategic shocks can occur as a result of unpredicted ‘black swan’ events or as the result of persistent failure to address deteriorating trends. Climate change is an example of a predictably deteriorating trend which will cause a strategic shock if it isn’t mitigated. Strategic shocks are more more risky than anticipated threats because they have not been mitigated.

‘Black swan’ events are totally unpredictable and therefore are difficult or impossible to mitigate. A large comet striking the earth would be a black swan event. Scenarios like the disintegration of the European Union, the formation of an Islamic State in the Philippines, or the collapse of the US Dollar cannot be defined as ‘black swan’ events because they are relatively predictable based on current trends and can be mitigated. The problem is how to identify and mitigate against relatively unpredictable ‘grey swan’ events?

Scenario planning is one of a range of methods that have evolved to help with decision making under uncertainty. Other useful methods include ‘what if’ analysis, deep learning, game theory and robust decision making.

The US National Intelligence Council’s most recent Global Trends Report (2017) illustrates how scenario planning can be used to think about the potential consequences of unpredictable events. The NIC report starts from the premise that:

“Thinking creatively about the future is often difficult because of the tendency for the recent past and current events to prejudice assessments. Developing alternative scenarios helps to challenge unstated assumptions about the future, revealing new possibilities and choices that are otherwise difficult to discern”

The use of such tools gives US defence planners and diplomats a significant intellectual advantage by defining the terms of reference for the ensuing public debate.

The 2017 NIC report discusses a range of global trends that are likely to impact the security environment including climate change, environmental degradation and health issues, changing demographics, fragmenting governance, growing exclusionism, weak economic growth, technological disruption, identity politics, and the changing nature of conflict. The analysis draws attention to potential strategic shocks such as labour riots by ‘gig workers’ and the use of drones to conduct criminal activities.

These trends are woven into 3 scenarios depicting the potential outcomes of near term volatility at the national, regional and transnational levels. One of the key insights from the analysis, for example, is the realization that anti-globalisation might actually improve US national resilience by removing its dependence on global supply chains.

The point of a strategic scenario analysis like the NIC report is not so much to predict the future as it is to stimulate a debate about resilience. The European Institute for Strategic Studies ‘grey swan’ approach adopts a similar approach

“… to help decision-makers think about possible responses to crises and how they can be prevented. The focus should not be on the scenario per se, but on what the scenario tells us about the vulnerabilities and strengths that lie in existing decision-making processes and crisis management structures. Such vulnerabilities and strengths are as much about our intellectual ability to grapple with a crisis situation as the practical or material responses. Therefore, strategic foresight and scenario-building may help us challenge ingrained ways of thinking about how we would deal with a range of grey swan situations.”

There is a clear disconnect between the pace of change and the ability of society to respond. Scenario planning initiatives like the NIC’s Global Trends Report and the ISS's ‘grey swans’ are useful ways of reducing the risk of strategic shock resulting from this disconnect. Hopefully the obvious disconnect will also spur investment and innovation in enhanced analytical and planning tools to enable society to respond more quickly and effectively to the sustained and rapid change in our security environment

?References:

National Intelligence Council (NIC), Office of the Director of National Intelligence. (2017). Paradox of Progress. Global Trends Report. January 2017.

Graub, F. (ed.) (2017). What if… conceivable crises: unpredictable in 2017, unmanageable in 2020?. Issue Report No. 34. June 2017. European Institute for Security Studies. 19th June 2017.

Schwab, K. (2016). The fourth industrial revolution: what it means, how to respond. [blog]. World Economic Forum.

Taleb, N. (2007). The Black Swan: The Impact of the Highly Improbable. Random House and Penguin