SteveBanker_100.jpgBy Steve Banker, Vice President: SCM, ARC Advisory Group

One of the good things that comes out of the World Economic Forum’s (WEF) annual meeting in Davos, Switzerland, is the Global Risks Report. Produced by the WEF, the report serves as a centrepiece for the themes addressed at the Davos event.

The report includes a survey of more than 1 000 members of various stakeholder communities. The reported results are worth the attention of executives that participate in risk management programmes at their respective organisations.

Top risks by likelihood
The top 10 global risks in terms of likelihood are:
1. Extreme weather
2. Failure of governments to take action on climate change
3. Natural disasters
4. Biodiversity failure
5. Human-made environmental disasters
6. Data fraud/theft
7. Cyberattacks
8. Water crises
9. Global governance failure (with the rise of economic nationalism the ability of governments to work together to solve problems is decreasing)
10. Asset bubble (which can lead to a severe global recession)

Top risks by impact

Top_risks_by_impact.jpgMore important than the likelihood of events occurring is their impact if they do occur. The top 10 global risks in terms of impact are:

1. Climate action failure
2. Weapons of mass destruction
3. Biodiversity loss
4. Extreme weather
5. Water crises
6. Information infrastructure breakdown
7. Natural disasters
8. Cyberattacks
9. Human-made environmental disasters
10. Infectious diseases

The above is a sobering list. What companies can do about these risks depend on the type of risk. Risk mitigation can include changing where factories and other facilities are located, which ports goods and raw materials flow through, where companies choose to invest in growth, hardening information technology systems, etc.

Companies also need to know more than just which risks have increased, they also need to know where risk is likely to occur.

Risks can, furthermore, be interconnected; mitigating against one type of risk can also mitigate against other similar risks. But sometimes choosing to mitigate against one risk can increase a different type of risk. In short, risk trade-offs need to be considered. Also, not all risks can or should be mitigated against.

Some of the solutions to risks need to come from governments, either individually or working together. In this case, risk mitigation involves lobbying. Lobbying by businesses is often seen as unfair favour-seeking. Lobbying for solutions to problems can only be seen as ethical.

As companies go through their annual strategic planning process, and update their risk management strategies, the Global Risks Report can be a good brainstorming tool.

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