How Owners Can Prepare for Black Swan Events
Even if you weren’t familiar with the term “black swan event” a few years ago, you likely became intimately familiar with what one looks like in the last year. Coined by author Nassim Taleb in his book The Black Swan: The Impact of the Highly Improbable, a black swan event is a rare, unpredictable event—perhaps, say, a pandemic—that has an extreme impact. Owners of commercial properties in various stages of construction and development were completely blindsided and (understandably) unprepared to deal with the fallout of COVID-19. Projects stopped, jobs were lost, cash flow was frozen and plans were thrown into uncertainty. The Commercial Construction Index fell from 74 to 55 during Q2 of 2020.
The premise of Taleb’s book is not to suggest ways we can predict these occurrences. Black swan events can produce feelings of helplessness as we try to pivot and defend our projects against natural, unforeseen disasters. Taleb points out that we often find comfort in convincing ourselves that these things can in fact be predicted, rationalizing that we can be prepared the next time. In reality, we never know what the next black swan event will be. It can be something we have a crisis plan for, yet its outsized impact can still destroy even the most considered approaches.
Instead, we must focus on “building robustness” in the easy times according Taleb. As an owner, how do you plan and prepare for a crisis you can’t name or shape in advance? The answer is combining good business sense, crisis preparedness and a dash of human behavioral psychology. We may not be able to predict a black swan event, but it is possible that the next one doesn’t have to mean the death of a construction project in motion.
Understand your inherent drive to downplay risk.
Risk assessment is a key part of any construction project. However, as a crisis approaches, it is human nature to downplay the level of severity. Black swan events are so sudden and so huge that we often have difficulty accepting them. In spring 2020, the projects that pivoted immediately rather than downplay the growing pandemic are the ones that survived. Those that were able to recognize the severity are weathering the ongoing storm, bringing projects back online and adapting to changes on the fly.
As an owner, recognize that it’s possible you are downplaying the risk in the middle of a crisis. Keep updated on the news around an evolving situation from a variety of sources, and pause to question why you may be readily accepting that things aren’t that bad. It’s also key to identify this in others; you may face pushback when you sound an alarm. However, as the last year has proven, it might be better to find out you overreacted later than lose a project entirely because you didn’t move fast enough.
Create a crisis approach that includes all partners and contractors.
At the start of a project, prioritize implementing a crisis approach that considers a number of potential issues. While we can’t predict what a black swan event will be, the beginning stages of your crisis response should ideally be applicable no matter what is happening. Who are the decision makers? What does the public need to know? Consider what you will need from your partners and contractors and vice versa. Communication steps will be a vital part of any plan.
Your main goal is to eliminate as much uncertainty as you have control over. Customers, partners, the public and the economy don’t like uncertainty. Close contact and transparency in the midst of crisis can head off many issues that could arise later.
Tap the expertise of an Independent Cost Estimator.
Independent Cost Estimators (ICE) can be integral in building your agility during the good times. These professionals are adept at assessing risk, aligning expectations and maximizing value at every stage of a project. ICEs can also uncover added value opportunities, ensuring you get the most out of your project and save money where possible.
When it comes to black swan events, working with an ICE can help you in two ways. First, ensuring that you save money and prioritize value on projects during normal periods can help you build financial stability that will become vital during an unforeseen crisis. When your projects are running smoothly and your business is healthy, your ability to bounce back is stronger. Second, a project in motion during a black swan event is better positioned to survive when an ICE’s expertise is tapped throughout. An ICE can guide you in pivoting and adapting on the fly.
Ultimately, we don’t know what the next black swan event will be. As we move toward a post-COVID-19 world, it will be important to turn our focus to building back a stable foundation so we can survive the next one – and thrive in the meantime.