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April 27, 2020

What Does COVID-19 Tell Us About Global Business Risk Forecasting?

The World Economic Forum's (WEF) annual Global Risk Reports get a lot of attention from the business community. In recent years, the prominence of climate change related risks has suggested to many observers that the business community is getting more serious about tackling climate change.

The COVID-19 crisis, however, gives us an interesting look into how a specific risk like COVID-19 does when it comes to business risk forecasting. We'll use the WEF's Global Risk Reports as the basis for our exploration. We'll start with the Evolving Risks Landscape 2007-2020 from the 2020 Global Risk Report as shown below. 

What does the graphic tell us?

  • That disease-related risk variables have not made the Top 5 Risks in Terms of Impact since 2015. Pandemics specifically haven't done so since 2008.
  • That disease related risk variables have not made the Top 5 Risks in Terms of Likelihood since 2010. Pandemics specifically have never made the list. 

But It's Never That Simple...

If you dig into the reports, you'll find that the situation is a bit more complicated than suggested in this graphic. It turns out, for example, that while infectious disease didn't make the Top 10 list for Short-Term Risk Outlook in 2020, it did make the Top 10 list for Long-Term Risk Outlook. And while infectious disease didn't make the Top 40 list of Short Term Risks in 2019, the Global Risk Report itself had an entire chapter on the growing threat from biological risks including infectious diseases and pandemics.

So while infectious disease has pretty much always appeared someone on the list in the Global Risk Reports, as shown here for 2020, it has not received the attention that it deserved. As noted in this recent Fast Company piece, COVID-19 was no black swan.

WEF Global Risk Reports may not be a great proxy for "business risk forecasting," but they help make the point that we shouldn't confuse risk assessment with public opinion surveys about risk. And that's probably the best way to think of the Global Risk Reports, even if the sample population is from the business community as opposed to the population at large.

For risk assessment purposes, long-tail risks can matter a lot, as we are seeing with COVID-19. We could argue about where along the long tail COVID-19 fits, but its systemic risk implications are huge regardless. 

Long-tail risks can matter a lot. We could argue about where along the long tail COVID-19 fits, but its systemic risk implications are huge. 

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Ranking Risks

On a slightly tangential note, it's interesting to think about how different groups of individuals within the business community rank risks differently. It's not that easy to tell from the Global Risk Reports each year, but periodically some insight is provided.

  • The 2014 Global Risk Report showed the risk landscape by gender; it's interesting to see that female respondents ranked risks almost universally as higher impact and higher likelihood.
  • The 2013 Global Risk Report showed the risk landscape by experts vs. non-experts in individual risk categories. The results are more mixed than in with gender, although interestingly experts tended to rank environmental risks across the board as being higher likelihood and higher impact than non-experts.
  • The 2020 Global Risk Report shows the risk landscape by "young" vs. "multistakeholder" respondents. As with gender, young people tended to see most risks as higher likelihood and higher impact.

The links above point you to graphics we have collected in a Global Risks Report Mini-Brain.

This post was originally published on LinkedIn.


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