When we face risks and uncertainties, we can use this four-quadrant model to classify risk events:
| Known risks | Neglected risks | |
|---|---|---|
| Predictable | Gray rhino | Elephant in the room |
| Unpredictable | Black jellyfish | Black swan |
How to distinguish
1. Gray rhino
: Obvious, high-frequency events that may lead to significant consequences but are often ignored. : In 2023, the sudden bankruptcy of Silicon Valley Bank in the U.S. due to liquidity crises shocked the financial world and revealed deeper issues of bank asset-liability mismatches under the Federal Reserve's aggressive interest rate hikes.
2. Elephant in the room
: Issues existing in the public eye but often ignored for various reasons. : The Floyd incident became a focal point of public attention, revealing long-standing racial inequality issues in American society that had been previously overlooked.
3. Black jellyfish
: Risk events originating from known phenomena but exceeding expectations. : The outbreak of the COVID-19 virus in the spring of 2020, although there have been multiple infectious disease outbreaks in history, its rapid spread globally and its enormous impact on the global economy were beyond expectations.
4. Black swan
: Difficult to predict, low probability of occurrence, but once it happens, it has far-reaching impacts. : The Fukushima nuclear accident triggered by an earthquake and tsunami had profound effects on Japan's and the global nuclear energy industry.
How to respond
1. Gray rhino
: Proactive identification and response
: Regularly conduct risk assessments within the company to identify potential gray rhino events. : Ensure the team understands potential gray rhino events and undergoes appropriate training to handle these events. : Develop emergency response plans for possible gray rhino events and conduct regular simulation drills.
2. Elephant in the room
: Enhance awareness and attention
: Encourage the team to raise issues they believe are being neglected, along with possible solutions. : Use cross-departmental, cross-professional teams to review decisions and strategies to ensure no important issues are overlooked. : Regularly interact with external experts, customers, and other stakeholders to obtain their perspectives and suggestions on the organization.
3. Black jellyfish
: Resilience and flexibility
: Avoid over-reliance on a single source of income, supply chain, or other resources. : Ensure the team has the ability to adapt to unexpected events, such as by establishing backup resources and training the team to handle emergencies. : Use advanced data analysis and predictive tools to continuously monitor potential changes and threats.
4. Black swan
: Prepare for the unknown unknowns
: Although black swan events are difficult to predict, disaster recovery plans can be developed for various scenarios. : Consider using insurance or other tools to transfer certain potential major risks. : Cultivate a culture of innovation and learning within the team, encouraging employees to continuously learn and innovate when facing unknown challenges.