Non-Estimable Threats
Some threats are difficult to estimate because they are rare or have no clear precedent. Organizations can prepare by building the capacity to absorb disruption and recover, while using available evidence to assess risks and choose precautions.
THE IDEA
Non-Estimable Threats
Some threats are difficult to estimate precisely, yet decisions about preparation cannot always wait for better data. The author uses disputes over climate projections to illustrate how uncertainty can delay action. He refers to roughly 100 years of detailed weather measurements and to concerns about methane released from thawing Arctic permafrost. The example concerns how evidence is disputed: uncertainty about the timing or scale of an effect does not, by itself, make the underlying threat unknowable.
Organizations also face rare events with some historical precedent and possible events that have not yet occurred. A tsunami-caused nuclear disaster, as at Fukushima, and an accounting scandal, as at Enron, can both threaten an organization’s survival. Their causes differ, as does the evidence available before they occur. Describing them as rare or unexpected does not establish that no warning signs or useful precautions existed.
Organizational resilience concerns the capacity to absorb disruption, continue essential functions, and recover. The idea draws on ecology, where resilience concerns a system’s response to disturbance. In organizations, it complements efforts to assess and reduce specific risks: a protective measure can fail, and an organization may still need to function while recovering.
The field brings together disaster risk reduction and business continuity management. The former plans ways to reduce disaster losses; the latter prepares organizations to maintain or restore operations during disruption, including failures of communications and data infrastructure. Agreement that resilience matters does not settle which preparations an organization should fund.
The author’s 3E framework proposes drawing together different kinds of relevant evidence, especially when a single historical record cannot support a dependable estimate. Combining sources can help reveal risks that one source misses. It still requires judging their quality, dependencies, and gaps; more information does not automatically produce an objective or convincing conclusion.
Superstorm Sandy illustrates the challenge. The account reports that the storm struck New York and New Jersey in 2012, causing nearly $70 billion in damage. It describes an unusual combination of a powerful hurricane, a dip in the jet stream, and lunar high tides, citing an estimated 1-in-500 years rarity. Those estimates are part of the source account. Rarity does not put a disaster on a timetable or establish that preparation was impossible.
For a threat without a clear historical precedent, managers may need to compare scientific findings, operational experience, scenarios, and other relevant evidence. The 3E approach is offered as a way to organize that assessment. Its practical question is which preparations the available evidence supports, and how the organization would cope if its forecast proved wrong.
When to use it
Evaluating the risk of locating a new factory in a region with a history of rare but devastating natural disasters.
Planning for cybersecurity threats that have no precedent, such as a novel attack vector.
Assessing the long-term impact of regulatory changes that could fundamentally alter a business model.
Deciding on investments in climate change adaptation measures for a coastal community.
FROM THEORY TO EVERYDAY LIFE
In practice
Climate Change
The author cites about 100 years of detailed weather measurements in discussing disputes over climate projections and delayed preparation for threats such as methane release from thawing permafrost. The example illustrates disagreement about evidence; it does not show that climate trends cannot be estimated.
Fukushima Nuclear Disaster
The tsunami-caused nuclear disaster at Fukushima illustrates how a severe external event can overwhelm an organization’s protections. Preparing for disruption includes considering what happens if those protections fail.
Enron Scandal
Enron’s collapse following an accounting scandal illustrates a threat to organizational survival arising within a business. It does not establish that fraud is inherently unforeseeable or beyond investigation.
Superstorm Sandy
The account describes the 2012 superstorm, nearly $70 billion in damage, and a combination of hurricane conditions, a jet-stream dip, and lunar high tides described as a 1-in-500 year event. It uses Sandy to argue for considering several sources of evidence when preparing for rare threats.
A MOMENT TO REFLECT
Put it to work.
Think of a decision you recently made that relied heavily on historical data. How would your approach differ if the potential outcomes were non-estimable threats?
Identify a potential black swan event in your industry or personal life. How could you build resilience to absorb its impact?
How might the 3E framework help you synthesize diverse information sources to better prepare for unprecedented threats?
Often confused with
CONTINUE THE CONVERSATION
Source texts
- Evidence-Based Decision-Making How to Leverage Available Data and Avoid Cognitive Biases (Andrew D. Banasiewicz)