Content reviewed and verified by Graham Chee, with FCPA-led practice at Local Knowledge, Mascot NSW. Continuous CPA Australia member since 1986. Prior career at Goldman Sachs, BNP Investment Management and Merrill Lynch.. Last reviewed August 2026. Next review scheduled for November 2026.
TL;DR
Essential information and practical guidance for Australian business owners and directors on identifying and planning for overlooked high-impact risks.
Key Takeaways
- Omission Bias Defined: This is the tendency to judge harmful actions as worse than equally harmful inactions (omissions). In a board context, it means focusing on risks that are actively created or clearly visible, while neglecting those that arise from a lack of action or consideration, even if the potential impact is greater.
- The Nature of Silent Contingencies: These are risks that are low-probability but high-impact. They are often not on the standard risk register because they are novel, require significant foresight, or are perceived as 'too unlikely' to warrant immediate attention. Examples include systemic supply chain collapse, unforeseen regulatory shifts (e.g., a sudden change to ASIC's corporate governance guidelines for proprietary companies under $50 million revenue), or rapid technological disruption.
- Beyond the Obvious: Most businesses have robust plans for common risks like market downturns or cyber-attacks. The danger lies in the 'unknown unknowns' – risks that are not merely uncertain but entirely unconsidered. A principal's role is to challenge this blind spot.
- Impact on Governance: Australian boards, particularly those of larger proprietary companies or public companies, are bound by duties of care and diligence (Corporations Act 2001, Section 180). Failing to consider foreseeable risks, even if low probability, could be seen as a breach of these duties if the impact is significant.
- The Cost of Inaction: The short-term cost of proactive planning for silent contingencies might seem high. However, the long-term cost of a catastrophic, unmitigated event – think of the financial and reputational fallout from a major data breach not covered by appropriate insurance, or a sudden change in ATO tax residency rules impacting global operations – far outweighs this.
Introduction
Why this matters for your business
Boards often overlook critical, albeit low-probability, high-impact risks due to an inherent bias towards readily apparent threats. This 'omission bias' leaves businesses vulnerable to 'silent contingencies' that can severely impact operations, reputation, and financial stability. This article provides a framework for principals to actively identify and strategically plan for these unconsidered risks, ensuring robust governance and long-term resilience.
Principal Advisor Graham Chee (FCPA, CPA) draws on Fellow CPA Australia status and prior institutional roles to deliver authority-grade guidance proactive business advisory services. As a principal-led practice since 2003, with FCPA sign-off on every file, Local Knowledge helps Australian business owners and company directors navigate complex strategic challenges with insights grounded in the CPA Code of Ethics.
Key Concepts: Understanding Omission Bias and Silent Contingencies
Essential points business owners should understand
Omission Bias Defined: This is the tendency to judge harmful actions as worse than equally harmful inactions (omissions). In a board context, it means focusing on risks that are actively created or clearly visible, while neglecting those that arise from a lack of action or consideration, even if the potential impact is greater.
The Nature of Silent Contingencies: These are risks that are low-probability but high-impact. They are often not on the standard risk register because they are novel, require significant foresight, or are perceived as 'too unlikely' to warrant immediate attention. Examples include systemic supply chain collapse, unforeseen regulatory shifts (e.g., a sudden change to ASIC's corporate governance guidelines for proprietary companies under $50 million revenue), or rapid technological disruption.
Beyond the Obvious: Most businesses have robust plans for common risks like market downturns or cyber-attacks. The danger lies in the 'unknown unknowns' – risks that are not merely uncertain but entirely unconsidered. A principal's role is to challenge this blind spot.
Impact on Governance: Australian boards, particularly those of larger proprietary companies or public companies, are bound by duties of care and diligence (Corporations Act 2001, Section 180). Failing to consider foreseeable risks, even if low probability, could be seen as a breach of these duties if the impact is significant.
The Cost of Inaction: The short-term cost of proactive planning for silent contingencies might seem high. However, the long-term cost of a catastrophic, unmitigated event – think of the financial and reputational fallout from a major data breach not covered by appropriate insurance, or a sudden change in ATO tax residency rules impacting global operations – far outweighs this.
Practical Guidance: Addressing Silent Risks in Real Business Situations
How this works in real businesses
Identifying and planning for silent contingencies requires a deliberate shift in board-level thinking. It moves beyond traditional risk management that primarily focuses on historical data and readily apparent threats. For example, consider the impact of a sudden, widespread industrial action in a key sector, extending beyond a single enterprise. While Fair Work Australia provides frameworks for industrial relations, a systemic disruption could cripple supply chains, affecting businesses far removed from the direct dispute.
Another example is the evolving landscape of environmental, social, and governance (ESG) factors expert accounting guidance for Australian businesses. While not all Australian businesses are directly subject to the Australian Accounting Standards Board (AASB) sustainability reporting standards (currently voluntary for many, but mandatory for some large entities from 1 July 2024), the 'silent contingency' is a rapid shift in consumer and investor expectations. A lack of preparedness could lead to significant brand damage or difficulty accessing capital, even for smaller entities not directly regulated. A principal-led approach encourages scenario planning that includes these 'what if' situations, rather than solely reacting to current mandates.
Recommended Steps: A Framework for Principals
A structured approach to consider
Challenge Assumptions & Broaden Perspective
Actively seek out diverse viewpoints. Engage external experts – economists, futurists, ethical advisors – to identify non-obvious threats. Conduct 'pre-mortems' where the board imagines the business has failed in five years and works backward to identify the causes, focusing on unexpected factors.
Scenario Planning & Stress Testing
Develop plausible, yet extreme, scenarios. For instance, what if a key trading partner implements sudden, restrictive trade policies? What if a critical piece of infrastructure (e.g., a major port or energy grid) experiences prolonged failure? Stress-test financial models and operational capacities against these events, even if their probability is assessed as low.
Develop Contingency Playbooks & Triggers
For identified silent contingencies, create clear, actionable response plans. This isn't about fully mitigating every risk, but having a framework for rapid response. Define 'trigger points' – early indicators that a low-probability event might be escalating – and assign clear responsibilities for monitoring and action. Consider a 'war chest' for unforeseen disruptions, separate from typical operational reserves.
Regular Review & Cultural Embedding
Integrate the consideration of silent contingencies into annual strategic planning and board meeting agendas. Foster a culture where challenging the status quo and questioning established norms is encouraged. This ongoing vigilance, rather than a one-off exercise, is crucial for long-term resilience.
Common Questions: What Business Owners Ask Us
Practical answers for your board
Q.How do we balance focusing on immediate threats with planning for distant possibilities?
It's about allocation of intellectual capital, not just financial. Dedicate specific, albeit smaller, portions of board meeting time to 'horizon scanning' and 'what-if' discussions. This structural change ensures these risks are not perpetually sidelined by urgent, but less impactful, matters. comprehensive financial planning strategies
Q.Our company is small; does this apply to us as much as a large corporation?
Absolutely. While large corporations might have dedicated risk departments, small to medium enterprises (SMEs) are often more vulnerable to high-impact, low-probability events due to fewer resources and less diversified operations. A systemic shock can be existential for an SME, making proactive consideration even more critical.
Q.What's the difference between a 'black swan' event and a 'silent contingency'?
A 'black swan' is an unpredictable event that is beyond normal expectations, with extreme impact. A 'silent contingency' is often a high-impact event that could be foreseen with deliberate effort and a broader perspective, but is overlooked due to bias or lack of structured inquiry. Our focus is on identifying these potentially foreseeable, yet unconsidered, risks.
Q.Can we quantify these low-probability, high-impact risks?
Precise quantification can be challenging due to the low probability, but qualitative assessment is crucial. Focus on the potential impact severity and develop a 'likelihood versus impact' matrix that includes a category for 'unconsidered but potentially catastrophic'. This shifts the focus from precise probability to potential damage and preparedness.
Conclusion
Secure Your Future Against Unseen Threats
The board's omission bias is a subtle yet potent threat to long-term business viability. By actively seeking out and strategically planning for silent contingencies, Australian business owners and directors can move beyond reactive management to truly principal-led foresight. This approach not only strengthens resilience but also fosters a culture of innovation and preparedness that can turn potential vulnerabilities into competitive advantages.
For personalised guidance on strengthening your board's risk oversight and developing robust strategies for silent contingencies, contact our expert team at Local Knowledge. Our FCPA-qualified principals are ready to assist you in navigating the complexities of modern business governance.
About the Author
Graham Chee, FCPA, CPA, GRCP, GRCA
Principal and Founder, Local Knowledge
Graham Chee is the principal and founder of Local Knowledge, an FCPA-led Australian practice that brings institutional-grade compliance, investment-structure and intellectual-property experience directly to owner-managed businesses. Graham is a Fellow of CPA Australia (FCPA since November 2005, continuous CPA member since 1986) and holds the OCEG Governance, Risk & Compliance Professional (GRCP) and Governance, Risk & Compliance Auditor (GRCA) designations. His prior career includes senior roles at Goldman Sachs, BNP Investment Management and Merrill Lynch. Graham was previously portfolio manager of the Asian Masters Fund (IPO December 2007 – 31 December 2009), which returned +29% in AUD terms versus the MSCI Asia Pacific (ex Japan) benchmark. He signs off on 100% of client files personally.
Areas of Expertise:
Industry-specific insights
This article is especially relevant to these industries. See how we tailor our services for each.
Get Personalized Advice - Contact Us Today
Every business situation is unique. Our team can provide tailored guidance for your specific needs, grounded in the CPA Code of Ethics and extensive experience in Australian business.
Graham Chee FCPA, CPA, GRCP, GRCA · Principal, Local Knowledge · Mascot NSW · CPA-signed files