Over the last couple of months or so, I’ve been lucky enough to have two opportunities to be scared witless by listening to experts on major global risks.  The first was the UK government’s Chief Scientific Officer, Professor Sir John Beddington at the Institute of Risk Management’s annual lecture.  He gave the audience a glimpse into how governments deal with big risks such as pandemics, volcanic eruptions, antibiotic resistance and severe space weather. 

If that wasn’t enough, I then heard one of the authors of the World Economic Forum (WEF) Global Risks Report 2013 – featured on the Risk and Innovation spotlight -  talk about the same topic.  The striking and consistent point that emerged from each was that many of the individual risks have not actually changed very much.  What really matters  - and therefore what really needs to be understood – is how these risks interact with each other to create novel risks.

The WEF report considers three such scenarios which represent an interesting constellation of risks; it then considers their impact at global and national levels so that policy-makers can build resilience to these risks.  It’s all well worth a read, but the difficulty for the individual organisation is understanding how to deal with these overwhelmingly large risks beyond its immediate control.  On the one hand, it’s simply not possible for an organisation to tackle them single-handedly.  But equally, responses such as burying heads in the sand and hoping they will go away or feeling helpless don’t seem quite right either.

Fortunately, our speaker was on hand to provide a few useful pointers for each scenario:

Digital fires in a hyperconnected world – this case refers to cyber risk, critical information infrastructure failures and the viral spread of information – or misinformation.  The origin may be organised crime, seeking financial gain or governments trying to obtain intellectual property.  In this case, business responses should focus on the practical with emphasis on data privacy and security.  Even simple steps like a clear desk policy can be valuable to prevent loss of information.

The dangers of hubris on human health – the key issues here are pandemics and antibiotic resistance.  While it is clearly beyond the capacity of individual companies to come up with measures like incentives to reduce overuse, what they can do is focus on business continuity planning.

Testing economic and environmental resilience – this was by far the most complex set of circumstances, bringing together stresses on the global economic system and the environmental system.  With a broader set of triggers, this one is by far the most challenging for an individual organisation to handle.   However, an important first step is to invest in scenario planning, using such resources as the WEF report as part of strategic planning, simply to get a handle on how supply chains and other aspects of the business might be affected.

So I wouldn’t recommend the WEF report as an easy and comfortable read – but certainly a crucial one.  Here are some further top tips:

  • Identify risks in the context of your business – and more importantly, understand how they interconnect.  Make sure your risk experts are capable of viewing risk from this broad viewpoint.
  • As the recent European horsemeat scandal has shown only too well, supply chains are complex, long and difficult to monitor.  You need to understand yours thoroughly.
  • Risk models and scenarios are useful, but you need to use them intelligently to make decisions.
  • And at board level, risks to reputation and implementation of strategy need to be prioritised.

What underpins all these tips is identifying and analysing the information that is relevant to the current and future performance of your business.  So reports such as the WEF Global Risks report provide valuable background reading for all CGMA designation holders.