Black Swans

Black swan events are so fascinating that they are a common source of discussion in many risk management forums. The variety of perspectives coming from all directions never ceases to amaze.

To a risk manager, ‘black swan’ phenomena are highly unlikely events that have massive impacts on a business or society on the rare occasions they occur. It means that the event is unexpected, but is of huge consequence (Ferguson, 2014). There is no scientific way at present to predict black swan events reasonably and acceptably.


I tend to question the result of the research, which suggested that by exploiting many types of data, risk managers can help prevent (or at least contain) the damage related to black swan events and other risky blind spots.

How can any data be useful without the process of correlation? Black swan events cannot be accurately quantified or calculated. They are unknown unknowns.

The interesting part mentioned in one study points to the use of integrated data to point to potential risk. The mere mention of integrated data underlines correlation; i.e. we have to associate correctly one datum to the next, or one set of information to the others, for them to be of value.

That can prove rather impossible when we have nothing to start with. How do we start working on something we do not know? There is an immense number of data points where one can start. Only by scratching the surface of knowledge that knowing starts.

Unknown unknowns (black swans) might be in the room, for all we know, but we just cannot see them until circumstances make them visible.

Once we see that the risk exists, we would surmise that it no longer qualifies as a black swan event, because we are now aware of the risk, and the element of surprise is no longer there. It is now the normal type of risk that you, and many risk managers are already familiar with, the known unknowns.


Bill Pieroni, Chief Operating Officer at insurance giant Marsh, and a few others, contend that the best way to manage risk, even black swans is to use big data.

He explains that some events occur with more and more regularity, suggesting that some seemingly unknowable events are in fact, becoming more or less predictable. He claims that this big data will give way to shades-of-grey swans.

Perhaps he is talking about the transition from being unknown to more or less known. Although it sounds logical, shades of grey will be a doubtful state, a ghost of something that will not present any solid evidence but introduce vagueness to nothingness. It might only serve as a uncertainty generator.


In the present age and time, black swan events can only be addressed by intuition.

Despite being labeled as one of the cognitive biases that underlie human flaws in decision-making, I believe that this is a true statement.

We can all agree that if anyone has the right perspective, understanding, and tools to process universal data, and integrate them into some coherent information, prediction of a black swan event is theoretically possible.

The problem in this concept is that nobody has found a way to make it practically possible.

Ergo, contrary to what the author implies, real-world application of Pieroni’s ideas is still impossible.

The risk universe is immense, yet each component, regardless of how small it might be, can affect the results. If we put a bracket to what data we analyze, then we do not have the whole picture.

If we do not put a bracket of limitation to what we evaluate, then we are analyzing infinity and we will not arrive at an answer. We are talking about a great and expansive risk network that trumps common comprehension.

I imagine that many risk drivers actually lie so far outside the boundaries of what we tend to consider that it is futile to predict a potential outcome.

Tracing the cause of a black swan event that has already happened can lead us to the most seemingly insignificant occurrence.

It is easy to posit real life examples of how some insignificant events result in a big events, spawning other effects in never ending fashion. Some of you might even trace a problem to the time when a person was born, arguing that if he had not come into being, things would have turned out differently.

I tell you, the iterations are endless. The good thing is, it is an excellent mental exercise.

Source: Frago, R. (2015).Risk-based Management in the World of Threats and Opportunities: A Project Controls Perspective. ISBN 978-0-9947608-0-7 (Canada). Section 1.7

Rufran C. Frago – Author (19-Oct-16)

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About rcfrago

Rufran C. Frago, P. Eng., PMP, CCP, PMI-RMP, is the Founder/CEO of PM solution Pro, a tradename/trademark of Risk-based Management and Services Inc., a Canadian company focusing on project/business risk-based management consulting, business development, creative products, and training services. Senior project consultant, planner, scheduler, engineer, business developer, published author, with deep, diversified experience in management and controls. Hands-on work experience in engineering, maintenance, reliability program, operation, EH&S, training, and administration. Recognized subject matter expert by peers in project and Turn-around maintenance planning and scheduling, schedule quality assessment, and risk analysis. Proficient in project management framework, processes, tools, systems, and applications. Risk-based practitioner who value safety, integrity, ethics, and professionalism. Mr. Frago's personal work philosophy: "My client's success is also my own!" He has many years of international industry-related work ‎experience in Oil & Gas, Petrochemicals, Oleo-chemicals, Sugar Refining, Power/Utilities/Nuclear, Manufacturing, Consulting, and Education. He has worked in various parts of the world (Location: Asia, Middle East, Canada, and North Africa). Rufran has worked with Caltex, Uniman, Unichem (now Cocochem), ARAMCO-KSA, Central Azucarera de Tarlac, Arabian Gulf Oil Company-Libya, Batangas State University, Saint Bridget's College, JG Summit Petrochemicals, Halliburton-Kellogg, Brown and Root, OPTI Canada, and Suncor Energy Inc. His expertise includes risk-based project management, risk analysis, planning & scheduling, cost management, auditing, maintenance, operation, EH&S and reliability engineering. He is interested in providing solutions and innovations to all clients and stakeholders. Mr. Frago is a risk management professional. He studied at BSU graduating with a Diploma in Petroleum Refinery Maintenance Technician, and BS Mechanical Engineering. He also has a Bachelors degree in Management Engineering from UB. He took up MBA courses under UP-PBMIT Consortium. Rufran completed Computer Technician Program at ICS-Pennsylvania, USA, APM Certificate program at SAIT-Calgary, and PM Certificate program-Construction Management. He is presently taking up PM Certificate program-Risk Management at University of Calgary. He was a recipient of the Gerry Roxas Leadership Award, the American Field Service (AFS) Scholarship grant, and the CALTEX scholarship grant where he specialized in Petroleum Refinery Maintenance. The author wants to share his knowledge and leave behind some legacy to all readers, most especially to his wife, children and lovely grandchildren, Eva and Mia.
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