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Unpacking The Iron Law of Projects: Black Swans Vs Gray Rhinos In Clean Energy

Gray rhinos are about the strategic perspective of what is important to do, and black swans are about the tactics of dealing with it most effectively and efficiently. Gray rhinos say focus on big issues like climate change, and black swan awareness help us deliver climate solutions.

Black swans and gray rhinos are both terms used to describe high-impact risks that would have a significant impact on individuals, organizations, projects, and societies. The term black swan was popularized by Nassim Taleb to describe rare and unpredictable events that have a major impact. In contrast, the term gray rhino was introduced by Michele Wucker to describe highly probable, high-impact events that are ignored until they become an immediate threat.

This morning I had the opportunity to ask Bent Flyvbjerg, (Linkedin, Twitter) economic geographer, first BT chair of major programs in the Said School of Business at Oxford, VKR professor at the IT University of Copenhagen, Danish knight, and co-author with Dan Gardner (LinkedIn) of the almost-released book How Big Things Get Done why he leans into black swans instead of gray rhinos in his research. After reading a pre-release version of his book in preparation for the discussion, it seemed that his research had shown that projects being over budget, behind schedule, and not delivering promised benefits was a gray rhino, not a black swan situation. After all, in his database of 16,000 carefully vetted projects, only 0.5% delivered on time, on budget, and met the benefits case. He considers it the iron law of projects that they don’t stay on track. It was a very useful discussion that helped me understand why both discussions are useful, and why they are somewhat different concepts.

A black swan is a term used to describe an unpredictable and rare event that has a significant impact. The term was popularized by Nassim Nicholas Taleb in his book The Black Swan: The Impact of the Highly Improbable, which was first published in 2007. The book argues that many significant events in history, such as the 9/11 terrorist attacks and the global financial crisis of 2008, were black swans that were not predicted by experts and had a profound impact on society. The concept of the black swan has become a cultural phenomenon and is often used to describe unexpected and high-impact events in various fields, including finance, economics, and politics. The idea behind the black swan is that it is rare, unpredictable and has a huge impact, therefore it is impossible to predict.

I read the book a while ago and didn’t find the argument compelling. It seemed as if Nassim was lucky twice more than he was saying anything novel. His first piece of luck was becoming affluent in his investment career. The second was in writing a book about risk that gave a lot of people air cover to pretend that the financial crisis of 2008 wasn’t predictable, when in fact it was predictable and was predicted. It seemed to me like a get out of jail card. And his presentation of the material didn’t help. He is sure he’s the smartest person in any room he’s in, regardless of who else is there. So why is the brilliant Flyvbjerg, whose upcoming book is essential reading for anyone engaged in project delivery, so focused on it?

I’m on record in a few places saying I found the gray rhino concept much more compelling and useful, especially given my focus on addressing climate change. Gray rhinos are high-impact, high-probability events that are largely overlooked by society. Gray rhinos are predictable and can often be prevented, but usually aren’t. The term was popularized by the book Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore by Michele Wucker (LinkedIn), which argues that society often fails to address these obvious dangers due to a lack of attention and action. The concept of gray rhinos has gained traction globally, particularly in Asia. In her most recent book, You Are What You Risk: The New Art and Science of Navigating an Uncertain World, and in communication with me, Wucker describes how much more attention it received in China for example, where it was discussed at the highest levels of China’s government. And I’ll be spending time tomorrow with Wucker to pull this apart more.

Climate change is a massive gray rhino. We’ve known for decades that it’s caused by us, it’s serious, and that we have the tools to fix it. Yet we have been tremendously slow to take serious action. Fossil fuel firms found it ridiculously easy to nudge us into inaction with deny and delay tactics, because they were working with our tendencies to ignore big, slow moving things which will have impacts only at hard to specify times. Gray rhinos are the opposites of tigers lurking in the grass, which get our attention immediately.

COVID-19 is also a gray rhino, in that since 2000 we’ve had SARS, Ebola, H1N1, and now COVID-19, and we dodged bullets with the first three. They could have been much worse, but for the amazing efforts of our global public health system. COVID-19 is worse than the Spanish Flu as a contagious, lethal illness, but we contained it. But we also weren’t particularly well prepared. Globally, we were short of personal protective equipment. The researchers working on mRNA vaccines were barely funded, despite the clear value for the next major pandemic. They kept slogging away despite our inattention, scraping funding together, thankfully.

But the discussion with Flyvbjerg gave me greater appreciation for Nassim’s (poorly presented) underlying thesis, which is that situations where there are fat-tailed risks are problematic. Spend a minute looking at this graphic from Flyvbjerg’s book.

Image of project categories which meet time, budget and benefits expectations vs ones that don't from How Big Things Get Done by Bent Flyvbjerg and Dan Gardner

Image of project categories which meet time, budget and benefits expectations vs ones that don’t, from How Big Things Get Done, by Bent Flyvbjerg and Dan Gardner

It’s original research, first published in the book, and as I said to Flyvbjerg this morning, institutional investors, national energy strategists, energy developers, and policy makers should flip to this graph in chapter 9, What’s Your Lego?, and internalize it.

What does it say? That in the 25 categories in Flyvbjerg’s data set of 16,000 major projects, wind, solar, and electrical transmission projects are all very likely to get delivered on time, on budget, and deliver the promised benefits once the first shovel hits the ground. Meanwhile, nuclear power plants and big hydroelectric dams are about as bad as they come for failing to deliver, down there with the ongoing and very visible failures of the Olympics.

That’s an important lesson for what we should be leaning into to get climate change under control, but why is this the case? It’s fat-tailed risk distribution, Taleb’s focus.

So what’s a fat-tailed vs thin-tailed distribution? Wind and solar farms have thin tails. That means that once they start, there’s not much that can actually go wrong. They are built above ground, so they aren’t going to have big surprises. They are built using highly modularized components that are part of a massive global supply chain of from manufacturing to distribution to construction. They are a bunch of things which can be constructed in parallel with high automation or cheap labor. And they can start delivering revenue before the entire set is constructed. Have 10 turbines up and running, the electricity management components in place, and a working transmission connection? Start making money, only months into construction.

Nuclear is the opposite. Every innovation in nuclear slowed things down. The complexity of the technology, global failures like Chernobyl and better assessment of risks meant more risk management and regulator oversight. Every one is a bespoke engineering megaproject. They take years, often a decade, to become operational after the first shovel hits the ground. And they get turned on all at once, with no benefits until the very end of the project.

Among other things, that speed to benefits variance means that there are lots more opportunities for fat-tailed risks such as political changes, protests, wars, market changes, or global nuclear meltdowns like Fukushima to throw wrenches into the works.

I explored the example of grid storage with Flyvbjerg, as I’ve been very bullish on pumped hydro, and less bullish on cell-based battery storage. But one, batteries, is vastly modular, has a global supply chain and is easy to pre-assemble in TEU containers, shipped to sites, put on pads, and connected. Would the modularity of batteries trump the decoupling of power and energy and deep maturity advantage of pumped hydro? It’s been a niggling doubt for me.

Flyvbjerg’s data doesn’t call out pumped hydro separately as a category. Typically he adds data and creates categories when organizations come to his firm, and no one has asked him to separate pumped hydro from major hydroelectric projects, which are also deeply problematic from a risk perspective. I provided him the basics of the space, which is that it was the largest operational form of grid storage today by orders of magnitude, it was the largest form under construction as well, and the Matt Stocks, et al., GIS study had identified 100 times the required resource potential in off-river, paired reservoir, closed-loop, 400m+ head height sites close to transmission and off of protected lands. Flyvbjerg was delighted to hear that, just as we were both delighted by the results showing wind, solar, and transmission being low risk.

But what about pumped hydro vs batteries? I asked him to speculate after providing him the basics of the technology. Two things leapt out. The first was that it requires tunneling underground. You’ll note that both mining and tunneling have significant risk profiles, although not nearly as bad as all things nuclear. Lots of long-tailed risks can appear underground, from hard-rock intrusions to fault lines to flooding. Driving a 2-8 km 10m diameter tunnel means you discover things along the way that can bog things down. As I discovered when looking at this space, there are a lot of tunnel boring machines that have been abandoned underground in partially completed tunnels around the world. And the second problem is that it takes a few years to build a pumped hydro facility. Those tunnels take time. And more time means more opportunity for long-tailed risks to appear.

And so, I have a better understanding of both risks, and the relative long-tailed risks associated with solving the gray rhino. This was an excellent conversation. Gray rhinos are about the strategic perspective of what is important to do, and black swans are about the tactics of dealing with it most effectively and efficiently. Gray rhinos say focus on big issues like climate change, and black swan awareness help us deliver climate solutions. The conversation will show up in a few weeks as two CleanTech Talk podcast episodes, and I encourage you to listen in, or read the summary articles I’ll publish. And, of course, you should pre-order How Big Things Get Done, and if you haven’t done so already, buy Gray Rhino.

This article was written with some assistance from ChatGPT and the heading image was generated by DALL-E.

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Written By

is a member of the Advisory Board of ELECTRON Aviation an electric aviation startup, Chief Strategist at TFIE Strategy and co-founder of distnc technologies. He spends his time projecting scenarios for decarbonization 40-80 years into the future, and assisting executives, Boards and investors to pick wisely today. Whether it's refueling aviation, grid storage, vehicle-to-grid, or hydrogen demand, his work is based on fundamentals of physics, economics and human nature, and informed by the decarbonization requirements and innovations of multiple domains. His leadership positions in North America, Asia and Latin America enhanced his global point of view. He publishes regularly in multiple outlets on innovation, business, technology and policy. He is available for Board, strategy advisor and speaking engagements.


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