In the world of risk management, there are various terms used to describe different kinds of risks, each represented by an animal. While IRM’s Level 1 Global ERM Foundation Exam covers the study of these known-unknowns unknowns unknowns and more, here’s a brief overview of these colorful metaphors: Black Swan, Grey Rhino, White Elephant, and Black Jellyfish.
- Black Swan: Coined by Nassim Nicholas Taleb in his 2007 book, “The Black Swan,” this term refers to highly improbable events that have massive impacts and are rationalized in hindsight. Black swans are unpredictable by nature, impossible to foresee based on historical data. The 2008 financial crisis and the COVID-19 pandemic are typical examples of Black Swan events.
- Grey Rhino: The Grey Rhino, a term introduced by policy analyst Michele Wucker, represents a highly probable, high-impact yet neglected threat. Grey rhinos are not random surprises but occur after a series of warnings and visible evidence. The risk is evident, and the event is foreseeable. The climate change crisis is a classic example of a Grey Rhino.
- White Elephant: A White Elephant refers to an investment whose cost of upkeep is not in line with its usefulness or value. The term originates from ancient Asian traditions where rare white elephants were given as burdensome gifts, as they were expensive to maintain and couldn’t be used for labor. In risk management, a white elephant might represent an expensive project or asset that isn’t delivering anticipated returns.
- Black Jellyfish: A relatively new term, the Black Jellyfish represents risks that are predictable and have a high impact but are ignored because they are feared or simply uncomfortable to confront. This term can apply to various social, personal, or business situations where risks are not addressed due to fear or anxiety.
Understanding these terms helps risk managers strategize effectively. While Black Swans remind us to expect the unexpected and prepare for broad-based impacts, Grey Rhinos urge us to address evident threats proactively. White Elephants caution us against investments that do not yield proportional returns, and Black Jellyfish tell us not to let fear or discomfort prevent us from confronting and managing significant risks.
These animal metaphors serve as vivid reminders of the various forms of risks in business and life, encouraging us to adopt a comprehensive and proactive approach to risk management.