Extreme Tail Risk vs. Black Swan Event

 When Canadian Prime Minister Mark Carney recently described the possibility of U.S. military action against Canada as an "extreme tail risk," he was using a term that risk professionals understand well: a highly improbable event with potentially severe consequences that still warrants consideration and planning.

This raises an interesting question:

How is an extreme tail risk different from a Black Swan event?

■ Extreme Tail Risk
•Acknowledged as a possibility, however remote.
•Exists within the boundaries of risk assessment and scenario planning.
•Organizations can identify it, model it, stress-test it, and prepare contingencies.
•It sits at the far end of the probability distribution: unlikely, but not unimaginable.
■Black Swan Risk
•Popularized by Nassim Nicholas Taleb.
•Considered unpredictable or outside normal expectations.
•Often catches institutions by surprise because it is either overlooked or deemed impossible.
•Its significance is usually understood only in hindsight.
The distinction is subtle but powerful:

👉 A Black Swan becomes an extreme tail risk once leaders recognize it as a plausible scenario and begin planning for it.
This is why mature risk management is not about predicting the future. It is about acknowledging uncertainty and asking:
"What events seem highly unlikely today, but would be extremely consequential if they occurred?"
The organizations that survive crises are often not those that forecast every disruption accurately, but those that have developed the discipline to examine the edges of the probability curve before everyone else.

Disclaimer:
●This post was prepared by Copilot, which can make mistakes.
●This is not a political discussion.

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Are you the same person you were before the COVID-19 crisis?

Now that you have stayed at home and working remotely for some weeks, it may be time to ask how this life-changing experience has affected you at the personal and professional levels?

Are you the same person you were before the crisis?

What has changed in your perspective of life, family, and your profession?

When you return to your office, hopefully in the near future, what would you be doing differently? Will you be doing audit planning, risk assessment the same way you used to do? How will your relationships with the stakeholders be reshaped? And more importantly, how your understanding of your role as an internal auditor has changed or evolved?

If you believe this experience has not changed you, can you share why you feel this way and what contributed to your status quo?

Please share your thoughts!

picture credit:https://liveboldandbloom.com

How will Internal Audit look like after COVID-19?

There have been many articles and posts dealing with the Internal Audit's role during the COVID-19 crisis. These were useful, but now we need to plan for what happens next. The economic, social and financial implications of the crises are expected to be severe at least for the short term.

Eventually, this crisis will pass and most businesses will resume operations and will have to adapt to the new realities to survive. Changes to operations and mindset will need to be made at all levels including at Internal Audit Departments.

As most of you are at home during this difficult time and are probably bored, let's try to think about how the internal audit function at your organization will look like after the crises! For example:

• Did the crisis change you as a person and how this will reflect on you as an internal auditor?
• What lessons have you learned during the crises and what are you going to do about it?
• What type of changes will you make to strengthen internal audit?
• Do you anticipate an increase or decrease in the number of auditors within your department?
• Do you anticipate management to change its perspective of internal audit (positive or negative)?
• What would you do to be prepared for the next crisis?

I look forward to hearing your thoughts and feedback!

Do Internal Auditors Have An Expiration Date?

Are We Asking Too Much of Internal Audit?

Whenever there are bad news or new events, many articles and posts start to pop up almost immediately questioning "where were the auditors?" and /or offering thoughts on internal audit's role in the event. Recent examples are the never-ending cases of sexual harassments and the rise of artificial intelligence. This leads to the question; "Are auditors still an easy target?". Or one would wonder if perhaps this reaction is done out of love to internal auditors and in recognition of their vital role? If it is the latter, it should, obviously, be welcomed by internal auditors! 

Many agree that the role of internal audit is continuously evolving as a result of increased stakeholders' expectations, the continuous advancement of new technology, the increase in business complexity, and the rapid emergence of risks. Many internal audit shops are rising to the expectations and challenges, but how many of them actually had the chance to “assess” the reasonability, practicality, and fairness of the expectations and discussed their views with their stakeholders?

They always say that with authority comes responsibility, and for the sake of this discussion I say: "with higher expectations come real empowerment of internal audit!".

The objective of this post is to ask for internal auditors’ thoughts to these questions:

-         Do you believe stakeholders are asking too much of you?

-          Are you provided with adequate tools, resources, and support to meet the expectations?

-          Have you had the chance to discuss the expectations with your stakeholders?

If I receive enough responses, I will summarize them is a separate post for the benefit of those interested in the subject.

Please share your thought.

CAE: Do you Have A Succession Plan?

As a CAE, you know that one day you will leave your position to either " pursue other interests", retire or be absent due to any other reason! When you audited the HR function in your organization, you have most probably included the organization's succession planning as part of that audit. If there was no succession plan, you most probably have recommended one. Now, let's see if you practice what you preach! Do you have a succession plan for your  Internal Audit Activity? If your answer is yes, you may stop reading this post! If it is no, keep reading!

Be proactive and initiate the process!

If there is no succession plan for your IA activity, be proactive and start the process yourself. This is how you may start:

• Discuss your proposal to adopt succession planning with your stakeholders (audit committee, CEO, HR,..etc ) and seek their support and commitment. Once this is done, talk to your staff and explain the importance of having a succession plan.
• Identify which positions need to be included in the plan (CAE, Director, Manager ..etc)
• Identify the required competencies.
• Assess internal candidates (talents) and determine if outside candidates need to be recruited.
• Select and train the successors and keep them engaged at all times!
• I also like the idea of putting the successors through what is called "stress tests" to ensure their preparedness.
• Monitor and update the plan on a timely basis.

When do you start the process?

The short answer is now! Whether you are planning to vacate your position now or after 10 years, the time to start the process is now. Preparing a successful successor takes time. Some reports suggest that it may take up to five years. Moreover, you need to be ready for any emergencies or disruptions that may prevent you and/or key personnel from performing assigned duties.

What's in it for you?

We all know the benefits of succession planning to the organization, but why would the CAE have a personal interest in it? Simply put, it is his/her chance to protect his/her legacy and have a say on who gets to continue and protect his/her hard work.

Start drafting your succession plan!

These are my thoughts, please share yours.

Are you an Internal Auditor at home as well?

Is your career, as an internal auditor, affecting your lifestyle and relationship with others?

It is a fact that our careers affect our lifestyle in one way or another, whether we intend this or not.For example, as an internal auditor, do you find yourself :

- Dealing with others with skepticism without giving them the benefit of the doubt?
- Paying too much attention to details at home? This may not keep your spouse or other family members happy!
- Trying to maintain independence in your relationships with family members and friends when sometimes you have to take sides and be biased?
- Questioning if your actions may result in a conflict of interest all the time?

On the positive side,do you think that internal audit made you :

- A more effective communicator
- An objective person
- A persuader
- Add value and change lives around you
- Vigilant. You pay more attention to your surroundings
- Better understand risks and opportunities
- Improved your decision-making process

Please share your thoughts and experience.

             

How to tarnish your company's reputation in 30 seconds?‎

Yes it’s possible; it only takes an inappropriate tweet or a status update on a social media web-page such as Facebook , LinkedIn  or a short video on  You Tube to cause a major damage to a company’s hard earned reputation or brand .This could happen intentionally or as a result of ignorance or oversight.  While the company may not have control over the intentional acts, it can do something to eliminate, or at least minimize, the actions caused by ignorance or oversight. Here is what I think can be done:

• It starts with recognizing the power & risks of social media .If management does not believe in it, then such management is part of the problem, not part of the solution.
• Raise awareness at all levels in the company about the benefits and risks associated with social media.
• Conduct training to educate all employees on how to deal with social media at work or in their private life.
• Set a clear and concise social media policy and ensure that it is distributed to and understood by all employees.
• Include social media risks in the company’s risk management plan.
• Include social media behavior in the company’s Code of Ethics.
• Perform Social Media audits on continues basis.

Can you suggest more actions or discuss your company's experience with this issue ?