When it comes to preparing for low probability but high impact events (i.e. Black Swans), the sad truth is most business executives will do nothing. Why? Nassim Taleb, author of the Black Swan, explains; “It is difficult to motivate people in the prevention of Black Swans. Prevention is not easily perceived, measured, or rewarded; it is generally a silent and thankless activity. History books do not account for heroic preventive measures.
Supply chain gurus push companies to optimize inventory practices, adopt just-in-time strategies, and reduce redundancy wherever possible. And in “normal times” this approach makes sense. However, when disaster strikes, manufacturers are discovering their thin margins for error are in fact, leaner than they should be.
When it comes to decision making, too much speed without attention to improvements in logic and business processes can be disastrous.
Statistics have been called “an engine of knowledge” by one risk management expert. And while it’s true that some business managers don’t have a fundamental grasp of statistical concepts, we also know there is opportunity for misuse of mathematics. Is statistics the “new grammar” or are efforts to attach certainty to life’s events doing more…