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Aon  |  Professional Services Practice
Black and Grey Swans: 5 Ways to Avoid Shocks

Release Date: February 2022

Foresight is not about predicting the future, it’s about minimizing surprise.” Karl Schroder, science fiction writer.

"We’re not out of this yet. If we have another weather event like we just went through, we are in deep doo doo.” Henry Braun, mayor of flood hit Abbotsford east of Vancouver. Reported in Canadian news media November 19th, 2021.

What is a Grey Swan?

Black Swan events are sudden shocks that could not have been foreseen or predicted. Grey Swan events are predictable but unlikely surprises. Like Black Swans, their impact can be severe.

Not addressing a big threat is counterintuitive but it happens for one of these reasons.

  • Grey Swans are likely to involve complexity that is difficult to navigate, or more simply, the risks are underestimated or ignored.
  • With hindsight, the event was predictable and therefore possibly avoidable: preparations could have been made.
  • The event could therefore involve a dynamic that is unknown because we refuse to acknowledge or explore it, or we fail to prepare for it, even if known, despite the potential effects.

What does a Grey Swan look like?

Past Grey Swan events may have occurred from internal failures, Enron is often quoted in this category, or from a failure to prepare for external shocks, and here the 2007-08 financial crisis is usually mentioned. Failures could involve judgement errors or other human acts, unexpected external events or failed risk and quality controls.1

Reputation issues will likely arise for professional service firms. Mistakes may be forgiven but more serious damage results if failures of values or ethics are exposed. Ethical failures are likely to be difficult to defend and expensive.

Why Grey Swans occur

Post COVID there is more attention to the interconnectivity of risks and the threats represented by external shocks: the connections between pandemics, business interruption and cyber security have been demonstrated. Through ESG debates, we are learning about the interconnectivity within environmental and societal concerns.

  • These connections are not always recognized. Global risks emerge rapidly and may be impossible to control. Looking at Aon’s recent Global Risk Management Survey, one lesson appears to be that more risks are appearing to arise from conditions of fundamental uncertainty.
  • Grey Swans usually involve a knowledge gap, a misalignment in plans, expectations, or incentives, or other errors, particularly those arising from biases. The short term is sometimes prioritized over the long term: reducing costs at the expense of investment can lead to financial risks and a reduction in long term resilience.

We often lack enough information, or we ignore what we should see. Humans may prefer to avoid visualizing bad outcomes.

What are the consequences?

The consequences are varied: immediate losses may be addressed but there could be subsequent and wider unforeseen consequences. For example, pandemic concerns arose immediately around cyber security and cash flow. The next wave of concerns included ESG risks, supply chains and employee welfare. The consequences continue to develop.

  • Existing and emerging losses may get worse
  • Historic failures are uncovered
  • New losses emerge due to a poor crisis response

What to do?

There seems to be a COVID driven and widespread impression that the world of risk is getting more difficult to predict and quantify. The past, however, does offer opportunities to learn about preparation and some mistakes to avoid.

Future risks and uncertainties can be reduced and managed by applying the learning and tools of risk identification and preparedness, business continuity, crisis management and general resilience planning.

Apply a structured approach, here’s a partial checklist:

  • Use a suitable risk management framework that involves a collaborative enterprise approach. Monitor the risk register.
  • Bias is inevitable but be aware of its existence and allow challenge.
  • Access scenario analysis and horizon scanning to widen the scope of risk identification. Look at other industries’ issues and how they are being resolved. Learn from errors, both yours and others, and near misses.
  • Systems theory techniques can be used to explore underlying conditions and causes, identify risks, and explore externalities and risk interdependencies.2
  • Procrastination happens but things must change in a crisis. Have a crisis management plan and test it.

The volatile, uncertain, complex, and ambiguous (VUCA) environment virtually guarantees that the next crisis will not be any more predictable than any others have been during the past 20 years.3

In the future more attention will have to be paid to external and systemic risks. While some of these risks will be outside of the direct control of the organization, their consequences may not be.


The Professional Services Practice at Aon values your feedback. To discuss any of the topics raised in this article, please contact Keith Tracey.

Keith Tracey
Managing Director

1 See, Predictable Surprises: The Disasters You Should Have Avoided, Michael Watkins and Max Bazerman, HBR, April, 2003

2 See Stroh, David Peter, Systems Thinking for Social Change, (2015). Also, for 11 page concise discussion, Application of systems thinking to risk management, Diana White, available by download.

3 What VUCA Really Means for You, HBR, Jan-Feb, 2014.