LOCALIZED EVENTS
Taleb does not limit his discussion of black swans to global events. Rather, improbable events can happen at a more localized
level, and the consequences can be more contained, even though severe for those affected.
For instance, consider the implications of warning letters, which have hit a number of contract manufacturers. Warning letters
generally have been considered improbable events, especially at CMOs and CROs, which are expected to maintain high levels
of compliance and are audited frequently by clients. When they do occur, however, clients risk having the flow of product
to patients interrupted and their revenues and profits drastically cut. The CMO or CRO faces the high cost of remediation,
the distraction of dealing with the regulators and nervous clients, and the prospect of convincing prospective new clients
that it is a reliable company.
OPENING UP TO POSSIBILITIES
Black swans present a classic risk management problem for those who should be addressing them: They are low probability events,
so they don't seem to deserve a lot of attention, but their impact can be so catastrophic that it would be foolish not address
them. Even if companies run risk-management scenarios or Monte Carlo–type simulations, they may conclude that the probability
of such events is so small that they are not worth the effort to address them. More likely, they will fail to anticipate the
chain of developments that might lead to a catastrophic outcome, the "one-in-a-million" confluence of events that no one saw
coming.
At same time, Taleb notes, black swans events can create unforeseen opportunities, like the side effects of sildenafil. The
challenge for decision-makers in the case of improbable positive events is to be open enough to seize an unexpected opportunity
when it presents itself, and not ignore it just because it doesn't fit the five-year business plan.
In the end, Taleb says that we must "shed the idea of full predictability," and "be prepared for all relevant eventualities."
Improbable does not mean impossible.
Jim Miller is president of PharmSource Information Services, Inc. , Springfield, VA, 703.383.4903, jim.miller@pharmsource.com
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