Global Risk Report 2014–Qualitative Analysis (1)


The first process in Risk Management if you are a project manager is to Plan Risk Management.   I covered this process for the Global Risk Report 2014 by the post two days ago on the methodology of the report, which describes the way the data for the report was collected.

The next process in Risk Management is to Identify Risks, and that process is covered by yesterday’s post, which showed that the 31 global risks that were identified as the key factors that the respondents needed to consider for the next process, which is the process of ranking and prioritizing those risks.   The reason for prioritizing risks is simply to allocate resources towards risk responses in the most effective way possible.

1.  INTRODUCTION–THREE QUESTIONS OF QUALITATIVE ANALYSIS

The three questions that the respondents were asked about the 31 global risks were:

  1. Which five of the global risks are of highest concern?
  2. Which five of the global risks have the highest probability of occurring in the next decade?
  3. Which five of the global risks would have the greatest potential impact if they were to occur in the next decade?

This post today covers the first of these three questions, the risks of highest concern.   Based on the answers from the respondents, the chart below contains the top 10 of the 31 global risks considered to be of highest concern.   (For a list of the 31 global risks, see the post for 02/04/2014.)   The list contains which of the five risk categories that risk belongs to:   economic, environmental, geopolitical, societal, and technological.

# Global Risk Risk Category
1 Fiscal crises in key   economies Economic
2 Structurally high   unemployment/underemployment Economic
3 Water crises Environmental
4 Severe income disparity Economic
5 Failure of climate change   mitigation and adaptation Environmental
6 Greater incidence of   extreme weather events (e.g. floods, storms, fires) Environmental
7 Global governance failure Geopolitical
8 Food crises Societal
9 Failure of a major   financial mechanism/institution Economic
10 Profound political and   social instability Societal

2.  ECONOMIC RISKS

From the above chart, you can tell that the category of risks that receive the highest number of votes for risks of highest concern is economic, followed by environmental.

One could argue that the fiscal crises, leftover from the Great Recession of 2008-2009, are closely linked to the risk of next highest concern, structurally high unemployment/underemployment.    The risk here is that even if there is an economic recovery, which appears to be the case in North America and Europe, the epicenter of the Great Recession, that the economy will not return to the same pre-crisis levels.

And the 4th highest risk, severe income inequality, can be understood from the observation that, as productivity continues to increase due to gains from technological, quality control, etc., the gains from that productivity will be heading mainly to the capital side of the economic interactions of society and not to the labor side.   This is borne out by the fact that real wages in the US (adjusted for inflation) have been stagnant.

It appears that the President Barack Obama understands the danger of the 10th highest risk, political and societal instability, and is trying to ease this danger by focusing on measures to alleviate structural high unemployment/underemployment (risk #2) and severe income inequality (risk #4).

3.  ENVIRONMENTAL RISKS

The extreme weather we are experiencing in the US is symptomatic of  risk #6 (greater incidence of extreme weather events).  It’s not the frequency and severity of snow storms east of the Rocky Mountains that I’m referring to, but that phenomenon coupled with the severe drought that is occurring in California and places west of the Rocky Mountains, to the extent of causing water crises (risk #3 above).

This imbalance of extremes of heat and cold in the depth of winter are, in turn, caused by an imbalance in the arctic jet stream (the so-called “polar vortex”) which in previously years has circumscribed the Arctic Circle but is now bulging asymmetrically downwards east of the Rocky Mountains.   If you ask why this is occurring, it probably has to do with the reduced ice cover over the arctic.   If all of these causal links aren’t necessarily proven within a magnitude of certainty, they certain are suggestive of how many of the environmental risks listed in the above chart are interrelated.

4.  SUMMARY

Economic and environmental risks seem to be those that worry most thought leaders who are in a position to know; the point of reviewing this list of 10 risks is not only recognizing that these two categories consume the majority of concern of leaders, but also that many of these risks can be seen as interconnected (a topic of a later post).   Although this may seem daunting, it is also a way to garner a sense of modified optimism, in that measures used to mediate even one of these risks may have a positive spillover effect on other risks in that same category.

The next post will deal with the second question of the qualitative analysis, those risks which have the greatest likelihood  of occurring in the next 10 years.

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