Exposure, Black Swans, and Real Options

Society has been susceptible to man-made and natural catastrophic events since the beginning of time. &nbsp;A few of the more notable natural disasters include the Antioch earthquake of AD 526, the 1881 Haiphong typhoon, and the more recent 2004 Indian Ocean earthquake and tsunami.[1] Man-made disasters include the great depression, the great credit crisis of 2008, and of course climate change.[2] Many scientists believe we have begun to surpass planetary boundaries on climate change (Hoffman and Jennings, 2019; Gillins &amp; Hagan-Lawson, 2014; Rockstrom et al., 2009), which may lead to periodic flocks of black swan[3] events represented by an increase in the number of natural disasters – e.g., fires, floods, tsunamis, pandemics, etc. &nbsp;Effective organizational responses to calamities with worldwide consequences are paramount. For events such as the COVID-19 pandemic, which have triggered isolation measures and taxed the efficacy of supply chains across countries, we recommend private and public organizations to engage in the real options[4] exercise of building small webs of “essential” supply chain nodes on low population density areas to:<br>continually serve these low population density areas during regular times, while ensuring sufficient slack capacity to maintain a state’s economy even if isolation measures are required.