Exogenous Events

Exogenous Events_10.08.17The term exogenous is adopted by many disciplines as having an external cause or origin. In medicine it is attributable to a catalyst affecting one’s health from outside the body. In finance it is something that cannot be forecast or understood by existing economic theory – a so-called black swan event. In colloquial text-speak an exogenous event might be written as OMG WTF! (with apologies to the hard of hearing – Ed).

Consumers don’t deal with change very well and struggle to handle shocks to normality – but consumers are also very resilient and quick to recover. Severe dislocations to what people consider “normal” are becoming more commonplace due to the speed of modern-day change. Thankfully the speed of learning and understanding is keeping pace – somewhat! Future planning was always difficult but the concept of, say, a 5-year financial plan is becoming utterly redundant because the actual pitches, not just the goalposts, are moving dramatically in a much shorter timeframe.

Traditional management techniques are poorly equipped to deal with the modern speed of change. Companies with layers of structures and bureaucracy may soon find themselves adrift. Tighter regulations will thwart progress; causing cracks and fissures to emerge; meaning management theory will have to adapt to the changing world. But the turmoil caused may have a catastrophic short-term impact on the economic environment and the political system. Much of the geopolitical upheaval that is evident in recent times has been attributed to the growing disconnect between the haves and have nots. This is far too simple an analysis. Most voters treat political parties like football clubs – they choose them early on in life and continue their support indefinitely!

Exogenous events can impact in strange ways. What appears unlikely suddenly looks plausible. Fianna Fáil and Fine Gael seamlessly coalescing! A new political party emerging in the UK from pro-EU enthusiasts! The demise of paper money! A new world order! Regulators relaxing regulation!

While some view such thinking as far-fetched and unreal the discipline of exploring unlikely outcomes is very worthwhile. History teaches us that steady progress, albeit at ever-increasing speed, is readily accepted by most and does not cause shock and awe. It is the calamitous disruption to the norms that people are unable to handle. Forecasting/forward planning has always set a central theme whereby the expected outcomes are portrayed. But all good planning also takes into account some possible and some highly improbable scenarios that might deflect the core forecast.

Why, therefore, is it so unreasonable to consider improbable future variables – no matter how unbelievable they might seem? In every walk of life it is prudent to plan for the unexpected. This is how our emergency services conduct their business. This is how insurance protection plans are devised and modified. Thinking outside the box and planning for the improbable event. Not just the mildly unexpected but the wildly unexpected. The ability to reverse aging is coming to a clinic near you soon. Now that would surely represent the supreme exogenous event!!