World Economic Forum (#WEF) Global Risk Report 2012 (part 2—Methodology) (2)


The World Economic Forum’s Global Risk Report 2012 was described in the overview has having the following methodology.

a)  Identify global risks, which are risks that are global in geographic scope, cross-industry relevance, uncertainty as to how and when they will occur, and high levels of economic and/or social impact.

b)  Categorize the global risks into five Risk Categories: economic, environmental, geopolitical, societal and technological.

c)  For each Risk Category, rank each risk according to likelihood and severity.

d)  Using the ranking, identify the risks of greatest systemic importance as the Centers of Gravity for each of each Risk Category.

e)  Identify Critical Connectors which are risks that are connected to the multiple Centers of Gravity, and thus link all global risks into one coherent system.

In the last post, I discussed steps a) through c). Now comes the fun part, where the experts take the 50 separate risks and figure out how they are all connected, covering steps d) and e).  The five categories of risk are:

 Figure 1. Global Risk Categories

 

 Out of the 50 risk factors, the five MOST LIKELY are:

Figure 2. Most Likely Global Risk Factors


Out of the 50 risk factors, the five MOST SEVERE are:

Figure 3. Most Severe Risk Factors


However, these risks have a tendency to affect one another. Within each category, you can see how that would be true for factors of the same type, so one could see that the economic risk factor of failure of financial institutions would affect energy and agriculture price volatility. However, factors of different types can interact with each other, so that, the economic risk factor of energy and agriculture price volatility would tend to create food shortages, which is a societal factor.

The World Economic Forum sees the factors as interrelated in the following way:

Figure 4. Risk Factor Interrelationships


The above is just a schematic diagram, but there can be links between all circles. Those factors that have the most connections WITHIN each risk category are called Centers of Gravity; the Centers of Gravity for the five risk categories are:

Figure 5. Risk Category Centers of Gravity


Finally, those factors that have the most connections BETWEEN the risk categories are called Critical Connectors which link all global risks into one coherent system. For a picture of this, which outstrips my ability to draw within the confines of Microsoft Word, I suggest you go to Figure 3: Global Risks Map 2012, which is page 6 of the World Economic Forum’s Global Risk Report 2012.

Here’s the link to the report:

http://www.weforum.org/reports/global-risks-2012-seventh-edition

In that global risks map, you can get a visual picture of the ecology of the risks that the globe faces. This is one reason why I think the Integral approach is important, because you need to understand the various factors that influence a given problem in order to solve it.


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