Out of the Black
Even if you previously weren’t familiar with the term “black swan event,” you’ve likely become intimately familiar with what one looks like over the past two years. Coined by author Nassim Taleb in his book The Black Swan: The Impact of the Highly Improbable, the term refers to a rare, unpredictable event—perhaps, say, a pandemic—that has an extreme impact.
“Extreme” certainly seems to be an accurate description of the impact that the COVID-19 pandemic has had on the construction industry, at nearly every level. The Commercial Construction Index (CCI) fell from 74 to 56 during Q2 2020 and remained statistically unchanged through Q3 of that year. Recovery has been slow, with the CCI remaining eight points below pre-pandemic levels through the end of 2021. Prices for raw materials such as lumber and steel have been extremely volatile, reaching historic highs and dramatic lows. March and April of 2020 alone saw 1.1 million jobs disappear from the industry—roughly half as many jobs as were lost throughout the entire Great Recession (although many of these jobs have since returned).
While the industry has persevered through what should be the worst of these effects, many contractors and project owners are now wondering: How can we predict the next black swan event?
Black swan events can cause feelings of helplessness and unease—as Taleb points out, we often find comfort in convincing ourselves that events such as these can in fact be predicted. In reality, we never know what or when the next black swan event will be. By its very nature, a black swan event is unpredictable. Unlike other considerations that may be straightforward or easy to foresee, a black swan event threatens uncertainty. And its outsized impact has the potential to doom construction projects—even those with considered approaches to risk.
The task for the industry, then, is to figure out not how to predict the next black swan event but how best to prepare for one. Taleb describes this as “building robustness” during easy times. Through a combination of good business sense, crisis preparedness and behavioral psychology, it’s possible to prevent the next black swan event from meaning death for your project. Here are three measures that you can implement to mitigate the impact of the next black swan event on your projects:
1. Understand your inherent drive to downplay risk. Risk assessment is a key component to any construction project. However, as a crisis approaches, it’s natural to downplay the potential severity of potential outcomes. Black swan events are so sudden and huge that we often have difficulty accepting them. At the beginning of the pandemic, in spring of 2020, it was the projects that pivoted immediately that fared the best. Those that recognized the severity of the pandemic in the early stages are now weathering the ongoing storm, bringing projects back online and adapting to changes on the fly. Many of those that were slow to respond have not fared as well.
As a contractor or owner, it’s critical to recognize that you may be downplaying the level of risk during the middle of a crisis. Being aware of potential threats to your project will allow you to respond to disruptions quickly. Keep updated on the news around an evolving situation from a variety of sources. Pause to reflect on your own attitudes toward the circumstances—make sure that you aren’t putting blind faith in things “not being that bad.” It’s also crucial to identify this in others; you may face pushback when you sound an alarm. However, as the last two years have proven, it might be better to find out later that you overreacted than to lose a project entirely because you didn’t move quickly enough.
2. Create a crisis approach that includes all stakeholders. At the start of a project, it’s important to implement a crisis approach that considers a variety of potential issues. While we can’t predict what the next black swan event will be, ideally, the beginning stages of your crisis response should be applicable no matter what is happening: Who are the decision makers? What does the public need to know? What does my project team need to know?
Consider what you’ll need from your partners and vice versa. Maintaining communication with all parties invested in your project is one of the best things you can do to help it survive a black swan event. Identify the key communication channels for your project and ensure that they stay open. Your main goal is to eliminate as much uncertainty as you have control over; keeping close contact and transparency amid a crisis can head off other potential issues.
3. Tap the expertise of an independent cost estimator. Independent cost estimators (ICEs) are well-equipped to help your project survive a black swan event. These professionals are adept at assessing risk, aligning expectations and maximizing value at every stage of a project. Working with an ICE will reveal opportunities to save money on your project, helping you prioritize value and build financial stability. This stability is greatly beneficial during an unforeseen crisis, giving your project more breathing room to survive times of extreme economic uncertainty. Engaging with an ICE when things are calm can help build agility and nimbleness that will be integral to your project surviving the next black swan event.
The End Is Near
Ultimately, we don’t know what the next black swan event will be. From a global pandemic to terrorist attacks to civil unrest, there is a near-endless list of potential unforeseen threats to your project. The best way to survive them is to be prepared by promoting nimbleness and maximizing value during the good times. As we move toward a post-COVID-19 world, it will be important to focus on building a stable foundation for your projects so that they survive the next black swan—and thrive in the meantime.