Imagine you have carefully planned your wedding for three years and are all set to fly to Antigua to get married. Along with your fiancé and the best man and three bridesmaids you reach Gatwick airport in London where you are told that your flight has been cancelled. This is exactly what happened to Kelly Williams and her fiancé Barry Stephens in April 2010. The couple had to call off their wedding. Why? Because of Eyjafjallajökull! Now imagine you are a famous cookery expert. You have been invited to visit Washington to do a special meal for the First Lady of US, Michelle Obama and her family. You find on the day of your travel from London, UK to Washington that your flight is cancelled. Sally Bee, the famous cooker expert, felt heartbroken. Why me? Because of Eyjafjallajökull!
Eyjafjallajökull is a volcano that I saw on the Icelandic map lying down in the hotel room at Reykjavik in 2007. Little did I realize then that the small beautiful country of 300,000 people in the middle of north Atlantic ocean will be making global news in the following two-three years. The first big news it made relates to consequences of 2007-2008 the banking crisis in the US and Western Europe which led to global economic recession. The second relates to eruption of Eyjafjallajökull in April 2010 that caused gridlock in the air space over Europe. Why do I mention these two events and what do they tell us about taking, planning and managing risk in life, business and career?
What are the chances of a volcano under Icelandic glacier erupting and releasing clouds of ash containing little rocks, ash and glass particles into atmosphere at the height of 20,000 to 30,000 feet in one of the busiest airspaces in the world over northern Europe? The chances of such an event are very few. It is what a statistician would call a very low probability event. The impact of some rare event could be very high. The ashy, rocky and glassy clouds hovering high in the flight paths could get into the powerful jet engines of wonderful flying machines we call airplanes. The heat of these engines would melt the glass and rock which in turn will choke the engines themselves and stop them making the Boeings into gliders in no time. Obviously the consequences could be tragic. That’s why for the first time in history of civil aviation the European air traffic controllers banned the flights for days. Till few days ago very few travelers would have thought that such an event would take place. But it did.
Overlooking the sulpher springs (Hot water) on volcanic surface in Iceland, June 2007
Photo: Devendra Kodwani
Now think about municipal councils of various cities in the UK, treasurers of many reputed universities in the UK, including Oxford and Cambridge, end up making huge deposits running into millions of dollars with Icelandic banks finding that their deposits are nearly lost because of Icelandic banks collapsing in the aftermath of global banking crisis.
Be it holiday makers and other travelers or the finance experts managing the funds of universities, councils and pension funds none considered that a very low probability event such as banking collapses or a volcanic eruption grounding 20000 flights could happen. These are what Nassim Taleb calls Black Swans. You may spot a million white swans over the years but that is no guarantee that there are no Black Swans. This phenomenon in statistics is a called finding an observation with a very very low probability. Remember a very low probability is not same as impossibility. There are some important lessons that Black Swans have for business managers and individuals when thinking about risk.
Actually a third more important lesson is that claims of business and economic knowledge and expertise have to be taken not with pinch but fist full of salt. There is a philosophical reason behind this. One of the greatest philosophers of 20th century, Karl Popper gave us a big idea of ‘indeterminacy’. Roughly his argument is that it is humanly impossible to know everything. There is limit to how much we can rationally know and understand. This leads to some practical ideas that you may find useful.
First, do not rely much on forecasts based on the historical trends. Since risk is inevitable part of life, do take risks (because otherwise you take it without your knowing) but know the potential consequences of the worst possible outcome. Second develop the ability to see the unintended consequences of any event. Here are some unintended consequences of shutting down the European airspace for few days in light of Icelandic volcano. We saw the hardships of travelers but now consider this.
Few days back I went to the market to buy vegetables with my wife. Usually we get most green vegetables in this small town market in southeast of England where we live. But that day there were no good quality fresh vegetables available and what was available was expensive. No surprises the Icelandic volcano in the middle of north Atlantic island had direct impact on our dining table! Most vegetables come to the UK through aerial route.
In future the travel insurance contracts will have to include or to exclude more explicitly 'travel chaos caused by volcanic ash' as a risk covered!
Several business and academic conferences were cancelled.
The Royal Mail took its mail from UK to Spain by train before flying it from there to the US.
But there is other side to problems, as always. The disasters bring out best in human creativity and compassion also. Read this and reflect how creative we could become if viewed remote risks as near possibilities. Tom Noble, a marketing director from north London, wanted to reach UK from France but was stuck because of flight cancellation. He had option to cross English channel on ferry. But he found at Dunkirk in France where he went to board the ferry that there was no space left for passengers on foot. There were though few seats available for the cyclists. Tom went back to streets of Dunkirk and bought a woman’s bicycle for 40 Euro and caught the Norfolkline ferry to UK in time to reach for his wife’s birthday. Another executive with British Airways gold card came riding a children’s bike!
The biggest risk is not to take any. The biggest mistake is not to make any. How? Think of one invention in history of human civilization that might have been done perfectly right in the first attempt. I am sure you will struggle to find one. Einstein once said that if an idea does not sound absurd in first instance then it is perhaps not worth pursuing.
Sun at 10.30 p.m. in Reykjavik, Iceland, June 2007.
Photo: Devendra Kodwani
Eyjafjallajökull is a volcano that I saw on the Icelandic map lying down in the hotel room at Reykjavik in 2007. Little did I realize then that the small beautiful country of 300,000 people in the middle of north Atlantic ocean will be making global news in the following two-three years. The first big news it made relates to consequences of 2007-2008 the banking crisis in the US and Western Europe which led to global economic recession. The second relates to eruption of Eyjafjallajökull in April 2010 that caused gridlock in the air space over Europe. Why do I mention these two events and what do they tell us about taking, planning and managing risk in life, business and career?
What are the chances of a volcano under Icelandic glacier erupting and releasing clouds of ash containing little rocks, ash and glass particles into atmosphere at the height of 20,000 to 30,000 feet in one of the busiest airspaces in the world over northern Europe? The chances of such an event are very few. It is what a statistician would call a very low probability event. The impact of some rare event could be very high. The ashy, rocky and glassy clouds hovering high in the flight paths could get into the powerful jet engines of wonderful flying machines we call airplanes. The heat of these engines would melt the glass and rock which in turn will choke the engines themselves and stop them making the Boeings into gliders in no time. Obviously the consequences could be tragic. That’s why for the first time in history of civil aviation the European air traffic controllers banned the flights for days. Till few days ago very few travelers would have thought that such an event would take place. But it did.
Overlooking the sulpher springs (Hot water) on volcanic surface in Iceland, June 2007
Photo: Devendra Kodwani
Now think about municipal councils of various cities in the UK, treasurers of many reputed universities in the UK, including Oxford and Cambridge, end up making huge deposits running into millions of dollars with Icelandic banks finding that their deposits are nearly lost because of Icelandic banks collapsing in the aftermath of global banking crisis.
Be it holiday makers and other travelers or the finance experts managing the funds of universities, councils and pension funds none considered that a very low probability event such as banking collapses or a volcanic eruption grounding 20000 flights could happen. These are what Nassim Taleb calls Black Swans. You may spot a million white swans over the years but that is no guarantee that there are no Black Swans. This phenomenon in statistics is a called finding an observation with a very very low probability. Remember a very low probability is not same as impossibility. There are some important lessons that Black Swans have for business managers and individuals when thinking about risk.
At a hiltop revolving restaurant overlooking Reykjavik, Iceland,
About 11.30 p.m., June 2007
Photo: Someone sitting next to me at the restaurant
Risk is chance of something happening other than expected. Risk is a fact of life in any walk of life. Highly improbable events from winning a lottery from 10 million tickets to being struck by a lightning do happen. The world leader in automobile engineering and known for their quality Toyota may mess up breaking and accelerator pedals. So the first lesson is to recognize we are all exposed to risk. Second, too much reliance on the historical trends is not advisable. History may repeat itself but that does not give you competitive advantage. Why? Because everyone knows that history repeats itself hence you knowing it is no special knowledge that you possess and others don’t. Knowledge may provide edge to your organization only when you have exclusive access.
Actually a third more important lesson is that claims of business and economic knowledge and expertise have to be taken not with pinch but fist full of salt. There is a philosophical reason behind this. One of the greatest philosophers of 20th century, Karl Popper gave us a big idea of ‘indeterminacy’. Roughly his argument is that it is humanly impossible to know everything. There is limit to how much we can rationally know and understand. This leads to some practical ideas that you may find useful.
First, do not rely much on forecasts based on the historical trends. Since risk is inevitable part of life, do take risks (because otherwise you take it without your knowing) but know the potential consequences of the worst possible outcome. Second develop the ability to see the unintended consequences of any event. Here are some unintended consequences of shutting down the European airspace for few days in light of Icelandic volcano. We saw the hardships of travelers but now consider this.
Few days back I went to the market to buy vegetables with my wife. Usually we get most green vegetables in this small town market in southeast of England where we live. But that day there were no good quality fresh vegetables available and what was available was expensive. No surprises the Icelandic volcano in the middle of north Atlantic island had direct impact on our dining table! Most vegetables come to the UK through aerial route.
In future the travel insurance contracts will have to include or to exclude more explicitly 'travel chaos caused by volcanic ash' as a risk covered!
Several business and academic conferences were cancelled.
The Royal Mail took its mail from UK to Spain by train before flying it from there to the US.
But there is other side to problems, as always. The disasters bring out best in human creativity and compassion also. Read this and reflect how creative we could become if viewed remote risks as near possibilities. Tom Noble, a marketing director from north London, wanted to reach UK from France but was stuck because of flight cancellation. He had option to cross English channel on ferry. But he found at Dunkirk in France where he went to board the ferry that there was no space left for passengers on foot. There were though few seats available for the cyclists. Tom went back to streets of Dunkirk and bought a woman’s bicycle for 40 Euro and caught the Norfolkline ferry to UK in time to reach for his wife’s birthday. Another executive with British Airways gold card came riding a children’s bike!
The biggest risk is not to take any. The biggest mistake is not to make any. How? Think of one invention in history of human civilization that might have been done perfectly right in the first attempt. I am sure you will struggle to find one. Einstein once said that if an idea does not sound absurd in first instance then it is perhaps not worth pursuing.
Photo: Devendra Kodwani
What do you think about relevance of above article to life, profession, business? Anything that you takeaway that's worth sharing with others? Share if you ever converted a problem into an opportunity to think or do something different which resulted in unintended positive development?
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