This article was published in Scientific American’s former blog network and reflects the views of the author, not necessarily those of Scientific American
Thirteen years ago, a group of us joined forces at the invitation of the World Economic Forum to embark on what would become an enlightening, yet sobering, journey in the risk space: the Global Risks Report initiative.
The Forum is most known to the general public for its annual meeting of world leaders and those on the intellectual forefront from business, government, civil society and academia every January in Davos, Switzerland. Davos 2017 began on Tuesday.
Yet over the years, the WEF has also helped create significant new knowledge on a vast area of topics. The Forum has accomplished this through an unmatched network of experts, regional meetings, workshops, collaborations with the public and private sectors, and publications—accessible to anyone for free on the Internet.
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The World Economic Forum’s annual Global Risks Report (GRR), published every year a week before Davos, provides a basis for more informed risk management decisions on issues of national and international importance. The GRR has become one of the most widely-read publications on global risk.
What has made the GRR different from other risk reports that have flourished in recent years probably lies in the novel methodology we adopted at its inception in 2004, departing from the old fashioned risk assessment approach on several aspects.
First, instead of focusing on one or two “favorite” risks (typically, those you know best because they fall under your own expertise), we consider between 30 and 40 of them, grouped in five complementary categories: economic, environmental, geopolitical, societal and technological risks.
Second, the report is written in accessible terms to improve both comprehensiveness and risk communication to non-specialists (no one is expert in so many risks anyhow).
Third, and against pressure for short-termism we all feel in today’s just-in-time society, we don’t focus on what next month will bring. Instead, the GRR takes a longer view: a 10-year horizon.
Fourth, and critically, not limiting the analysis to a two-dimensional likelihood/severity approach, we also consider a three-dimensional view, capturing interdependencies: rather than analyzing these risks in silo, it is important to understand how they reinforce, control or counter, each other. These relationships define a “risk interdependency map.”
Finally, repeat, repeat, repeat. We believe this exercise can bring even more value when conducted year after year to foresee evolving trends and discover non-obvious interconnections across risk categories and geographies.
A note of caution to the scientific community here. Given the scope of the exercise, it would be unreasonable to think we can granularly and precisely “measure” all those risks. Rather, every year we gather information through a perception survey of hundreds of leaders and experts (750 took part in the survey this year) who provide their ranking of global risks’ anticipated likelihood and severity over a 10-year horizon on a seven-point scale.
So, what tops the ranking in this year report for the next 10-years? Extreme weather events and other natural disasters; large-scale involuntary migration; terrorist and cyber attacks, as well as the use weapons of mass-destruction. As for interdependencies, profound social instability (even more pronounced that we see today) appears as a key center of gravity, affecting many other risks and being affected by many others as well.
Furthermore, society is not keeping pace with technological change. Of the 12 emerging technologies examined in the report, experts found artificial intelligence and robotics to have the greatest potential benefits, but also the greatest potential negative effects and the greatest need for better governance.
We often get the same—relevant—question: Has it worked? While not a crystal ball, it has indeed yielded some startling results.
Four of the top five risks in the 2007 edition of the GRR report were Asset price collapse; China’s economic landing; Breakdown of critical information infrastructure and Retrenchment from globalization. The financial crisis unfolded the following year. China’s annual GDP growth was 14% in 2007; it won’t be half of that this year. Large-scale data breaches are part of our daily lives today.
As for retrenchment from globalization, which was one of the top risks the report warned about again in 2008, 2009, 2010… well, we are right there today. For instance, many were surprised by Brexit and the result of US presidential election. Yet, signs that societal and economic risks could create real-world disruption have been reported in the Global Risks Report over the past decade. In 2006, the GRR warned that the elimination of privacy reduces social cohesion. In 2013, years before “post-truth” became the 2016 word of the year, GRR highlighted the rapid spread of misinformation, observing that trust was being eroded and that better incentives were needed to protect quality-control systems. Citizens, we said in last year’s report, strongly feel dis-empowered.
Only when one monitors risks and maps interdependencies over time, across categories and geographies, can one see changes coming from afar and creatively plan for upcoming disruptions.
Risk management, as a field, has radically changed over the past 13 years to become an integral part of the strategy discussions of C-suites, boards of directors of firms and government cabinets, around the world—a “sexy” topic, if you will. Scientific knowledge has dramatically broadened as well, providing more data to those who make consequential decisions involving global risks.
Whether the world of 2027 will indeed be one where the aforementioned top risks prevail has yet to be seen. But if past experience can shed light, and absence of proper collective actions to manage these risks, that might very well be the case.
A question to the reader: Imagine you could indeed better see the future of risk. How would you behave differently?
Erwann Michel-Kerjan
Erwann Michel-Kerjan is Executive Director of the Wharton School’s Center for Risk Management and serves on the World Economic Forum’s advisory board of the Global Risks initiative.
