IP22: Dealing with risk in an age of uncertainty
I hope that everyone is having a good January. If, like many, you’re doing Dry January, then congratulations. And you only have one full day left!
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For this newsletter, I want to start thinking about how to engage with the future more effectively and to rethink the way that we perceive risk. This was prompted by a social media discussion about the WEF Global Risks Report.
As ever, any thoughts and comments are much appreciated. You can reach me on Twitter here.
Thinking About Risk In An Uncertain World
It was Davos a few weeks ago. The annual gathering in Switzerland has, of course, become a top target for satirists. And the mixture of ageing rock stars; billionaires discussing inequality; and private jets being flown in for climate change debates can give the humourists plenty of material. But the event does provide a unique forum for business leaders, politicians (and rock stars) to meet to discuss important issues.
That hot topic this year was very much the opportunities arising from Artificial Intelligence and how the technology should be regulated and governed. The WEF themselves have pulled together a useful primer of what was said by key stakeholders, with figures ranging from Sam Altman to the Rwandan Information Minister. And much of what was discussed about AI in Davos will also be discussed on this newsletter in the coming months.
Unusually, it isn’t AI that I want to discuss this week. Instead, my attention was drawn to a document that the WEF publish each year alongside Davos. The Global Risks Report always makes for fascinating reading and produces charts such as this one, which illustrate the interconnectedness of Global Risks:
John Burn-Murdoch, the always unmissable Financial Times’s stats guru tweeted a pithy critique of the report on the day it was published:
And he has a point. As he put it in a later tweet, “I just meant there is no way one can possibly rank those things in any meaningful way, or conclude anything meaningful from looking at those rankings. They’re entirely different categories of risk…Might as well ask “which do you prefer, chocolate or respect?”
The WEF are right in emphasising the growth of global uncertainty and how the risks that are the key elements of this environment of uncertainty might shift over the coming months and years.
However, it’s also worth engaging with John Burn-Murdoch’s critique and considering how engagement with understanding global risks could be improved even further to maximise their usefulness for businesses and other organisations. In short, how can we best engage with a deeply uncertain future.
Think about alternative viewpoints
Something that often stands out in documents from major global organisations is how much, by their nature, reflects the consensus view. This can make documents reflecting them relatively blancmange in nature - often seemingly determined to say as little provocative as possible. But issues that the Global Risks Report addresses, such as polarisation and inequality, are often symbolic of the fact that a consensus view has lost societal support and has also been found wanting by events. Asking 1,500 Davos goers is largely unlikely to represent effectively those who feel left behind from economic success.
In such an environment, it’s arguably more important than ever to avoid the perils of groupthink (which we tackled in IP4). The “black hat wearer” in De Bono’s Six Thinking Hats has never been more crucial, with the black hat wearer being given the task of articulating the problems with an idea or a concept. Rigorously testing ideas by setting out alternate views, as is practiced (with mixed historical success) in the State Department, is essential in a world that has been dominated by surprises and uncertainty. When uncertainty reigns, making active attempts to tackle groupthink and stress-test ideas become more essential than ever.
Consider impact and potential actions
The kind of geopolitical and technological risks highlighted in the report cannot be considered in abstract. Geopolitical uncertainty is not an exercise in theory, it can (and has) have a genuine impact on bottom lines and the licence to operate. As such, it is always important to take a proactive approach to managing geopolitical risk and uncertainty - considering how potential risks might impact an organisation and how it should respond - both now and if a risk escalates.
Use scenarios and pre-mortems to consider how risks might compound
The WEF interconnections map (above) is a useful reminder that in the age of “permacrisis”, risks can’t be treated in isolation. The environment of uncertainty necessitates a mindset shift. A neat risk matrix or RAG chart is often not sufficient to understand risks that are in many ways neither neat nor predictable. One-dimensional tools are no longer adequate when the risks and uncertainties are three-dimensional. Instead it’s important to use tools that illustrate how risks might interact with each other, potentially increasing the potency of individual risks. As an evangelist for scenario planning, I obviously think scenarios when done properly are a hugely powerful tool in doing this, given their ability to interrogate how different driving forces might intersect. Equally, pre-mortems (which work backwards from the hypothetical best or worst case result a number of years in the future) provide a means of thinking about intersecting risks more effectively.
It’s hard to create certainties out of uncertainties. And remember that 70% is not 100%
Attempting to rank uncertainties or even to put exact percentages alongside them might seem tempting, but it often understates the very nature of risk in an uncertain world. It’s human nature when told that certain events are more likely than others to purely focus on the more likely ones at the expense of the others. Look back to the 2016 Presidential election to prove this point. At the risk of giving some readers PTSD, the below is the final Five Thirty Eight election prediction from 2016:
As Nate Silver argued when looking back on his prediction, a 30% chance is a “pretty likely occurrence”, but conventional wisdom and groupthink (that word again) when many people chose to believe that polling showing a 71% probability of a Hilary Clinton win actually represented a 100% chance. In an unpredictable world, engaging with all plausible futures is essential, rather than simply what you perceive as the most likely future.