World Economic Forum Global Risk Report 2013–Methodology #WEF


1.  Introduction

The World Economic Forum’s Global Risk Report 2013 was published in November 2012 and was described 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.

The purpose of this post is to go into detail about steps a) through c) were achieved.

2.  Steps  A, B.  Identify Global Risks and Categorize Them

A survey was done of 50 global risks with world-wide expert and industry leaders, with the question being asked about what the a) perceived impact and b) likelihood for each risk would be over a 10-year time horizon.   The experts were asked answer on a scale from 1 points to 5, with 1 being the lowest impact or likelihood, and 5 being the highest impact of likelihood.

These 50 global risks were put into the following five categories

1.  Economic

2.  Environmental

3.  Geopolitical

4.  Societal

5.  Technological

Step C.  Most Likely and Most Severe Risks for 2013

Based on the responses from the experts, the top five MOST LIKELY global risks for 2013 were the following:

1.  Severe Income Disparity (4.22)—Economic

2.  Chronic Fiscal Imbalances (3.97)—Economic

3.  Rising Greenhouse Gas Emissions (3.94)—Environmental

4.  Water Supply Crisis (3.85)–Societal

5.  Mismanagement of population ageing (3.83)–Societal

The higher the number, the greater the likelihood, with the remaining 45 global risks being less than the five listed above.   The top two factors seem to be risks relating to the global economy, followed by an environmental risk (rising greenhouse emissions), and two societal risks (water supply and population ageing).    The current list of most likely risks for 2013 is the same as the one for 2012 with one exception, in that mismanagement of population ageing has displaced the threat of cyberattacks as being more likely to occur within the next 10 years.   Those risks relating to the global economy are still considered the most likely risks to occur.

Based on the responses from the experts, the top five MOST SEVERE global risks for 2013 were the following:

1.  Major Systemic Financial Failure (4.04)—Economic

2.  Water Supply Crisis (3.98)—Societal

3.  Chronic Fiscal Imbalances (3.97)—Economic

4.  Diffusion of Weapons of Mass Destruction (3.92)–Geopolitical

5.  Failure of climate change adaptation (3.90)–Environmental

The higher the number, the greater the severity, with the remaining 45 global risks being less than the five listed above.   The top risk relates to the global economy, followed by a societal risk (water supply crisis), another economic risk (chronic fiscal imbalances), a geopolitical risk (diffusion of weapons of mass destruction), and an environmental risk (failure of climate change adaptation).   The top three risks on the current list of most severe risks for 2013 is the same as for the list for 2012, but the fourth and fifth risk are new in 2013, reflecting the more prevalent concern about the threat of weapons of mass destruction and the failure of climate change adaptation.

Just from going through the first three steps of the methodology, one can gain an understanding of  the different types of risks that are being considered, the ones that are considered the most critical, and how this perception of risk has changed in the recent past.

Next weekend, I will discuss the three risk cases that focus on the complex interrelationships between many of the top global risks listed above.

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