Global Risk Report 2014–Qualitative Analysis (2)


1.  INTRODUCTION

In my previous posts on the World Economic Forum’s Global Risk Report 2014, I have concentrated on

  • the methodology of the report (corresponding to the Plan Risk Management process of Project Management),
  • the identification of risks (corresponding to the Identify Risks process of Project Management)

and now in this third series of posts, I am concentrating on the next topic,

  • the qualitative analysis of risks (corresponding to the Perform Qualitative Analysis process of Project Management)

This qualitative analysis is called “qualitative” because it does not fix a specific dollar amount to each risk (that would be “quantitative analysis”), but instead analyzes each risk according to some qualitative variable, usually something like likelihood, severity, and/or urgency

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?

In yesterday’s post, I discussed the result of asking the respondents to the survey the first question.   In this post, I discuss the result of asking them the second question, on those risks which have the highest probability of occurring.

2.   HIGHEST PROBABILITY RISKS

The respondents were asked to assess each of the 31 risks (these risks are listed on the post dated 02/04/2014) based on the probability of occurrence on a scale from 1 to 7, with a “1” meaning that the risk is not likely to happen, and a “7” meaning that the risk is very like to occur.

Those 5 risks that rated as having the highest probability of occurrence were as follows:

  Global Risk Category Likelihood
1. Income disparity Societal 5.4
2. Extreme weather events Environmental 5.3
3. Unemployment and underemployment Economic 5.1
4. Climate change Environmental 5.0
5. Cyberattacks Technological 4.9

Here are some things to notice about these risks.

a.  Four out of five risks are highly correlated

Risk #1, the societal risk of income disparity, is highly correlated to Risk #3, the economic risk of unemployment and underemployment.   You can see that the strategy of President Barack Obama in his State of the Union speech was to reduce the societal risk due to income disparity by creating policies that reduce the economic risk due to long-term unemployment and underemployment.

Likewise, Risk #2, the occurrence of extreme weather events, is happening in the US right now as the states east of the Rocky Mountains (like Illinois) are experiencing record low temperatures and snowfall as states west of the Rocky Mountains (like California) are experiencing record droughts.   According to the majority of scientists, these extreme weather events are being triggered by climate change, which is Risk #4.

b.  The top risk is a “repeat offender”

Risk #1 on the chart, the societal risk of “Income Disparity”, was also the risk considered to have the highest likelihood of occurrence in 2012 and 2013.   This shows that this problem is not only considered severe, but has remained at the forefront of the consciousness of global leaders for quite some time.

c.   What is missing from the list?

The risk that was considered #2 in terms of likelihood of occurrence in both 2012 and 2013, but which is absent from the “top 5” list in 2014, is “Chronic fiscal imbalances.”   This perhaps reflects the sea change in economic thinking from the belief that budget deficits are the most pressing economic issue for many of the world’s economies.   In Europe especially, but to a lesser extent in the US, it was considered that the solution to this issue was to cut government spending.

It seems like there is a shift to the realization that in the face of massive unemployment, stimulating the economy through some sort of government spending, particularly investments in infrastructure and vocational training, might be a more effective strategy to follow in order to improve the economy.   This, of course, is just my opinion, not that of the World Economic Forum, but this shift in thinking would account for the shift in the ranking of economic risks in the past three years.

3.  CONCLUSION

On the economic front, unemployment/underemployment and its societal counterpart in terms of income disparity is considered the risk that is most likely to occur, whereas on the environmental front, climate change and its consequences on extreme weather events are also very likely to occur.   Next in terms of likelihood is the occurrence of cyber attacks.

I’ll conclude this post with one interesting observation made in the report between a risk and a trend.   A risk is something which has not yet happened, and may happen in the future.   A trend is something which has already happened, but may reoccur in the future.   It may seem semantics, but many of the risks that are on the list describe events that have already occurred in some shape or form before 2014 and are either going to re-occur or get worse in the coming year(s).

It reminds of a quote from the science fiction novel by John Brunner called Stand on Zanzibar written back in 1968.   “Overpopulation–it’s one of those events that most people think is going to happen tomorrow, but in reality it started to happen yesterday, when most people weren’t looking.”    I’m quoting from memory, so it’s not an exact quote, but it gives the tenor of the point I am trying to make.

Okay, it’s one thing to say that a risk is likely to happen.   What about when it does happen?   What will be its impact?   The respondents were asked about that question as well, and that will be the subject of my next post.

 

 

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