Contrary to some commentators, the COVID-19 pandemic is not a “Black Swan” event. A global pandemic was not only predictable, it was predicted: scientists and experts have warned for decades that a global pandemic involving a highly infectious respiratory disease virus was a plausible scenario.
This matters because it affects how we judge the world’s response, and therefore what lessons we learn for the next phase of the pandemic.
The pandemic is a high impact, low probability emerging risk. These risks do make it onto a risk register but often fade into the background when risk severity is considered as a combination of impact and probability. They are often hard to detect, difficult to assess and easy to ignore.
Managing emerging risks cannot be a strategic afterthought. We knew this before the pandemic, but COVID-19 has hammered the message home with brutal effect. As the World Economic Forum’s COVID-19 Risks Outlook report, published in May, makes clear, it is now vital to anticipate the emerging risks generated by the repercussions from the pandemic. In other words, we are only at the beginning.
A change in approach is required. The risk management techniques many risk professionals use may not be effective for managing these types of emerging risks.
First, risk assessments and heat maps used for more conventional risks should be complemented by structured, creative discussions across business units that bring different and collaborative risk perspectives on a topic. This can help organisations to better identify emerging risks and understand potential risk trajectories and velocity as well as knock-on effects.
Second, the frequency of risk assessment and analysis should be a function of how fast risks are emerging and the level of their materiality rather than determined by traditional institutional administrative cycles. A time lag can open up when the external and internal context moves faster than the organisation, creating a gap between the reality and the perception of risk.
Third, organisations should focus more on the interconnections between risks. This requires an integrated enterprise-wide risk management framework in order to align risk-based decisions with corporate purpose and culture. Too often, risk is managed in business silos leading to senior leaders playing down emerging risks until they are on the risk register.
Out of any crisis comes new risks and new opportunities. More than ever, risk professionals must focus on strategic ambitions and commercial priorities, understand business dynamics, and partner the business as ‘time-keepers’ helping to synchronise business reactions with external realities. Risk professionals who take a role supporting strategic decision-making can contribute to the creation of the risk-intelligent organisation.
Many have called this pandemic crisis “unprecedented”, but we should not be surprised to see some countries in Asia and sub-Saharan Africa respond more effectively than others – they have been there before and learned the lessons.
The Board and top management of organisations expect up-to-date risk information, in order to make informed decisions. Key risk indicators in a crisis situation require a clear process for scanning the risk horizon for external and internal triggers, which allow management to monitor possible changes in the impact or the likelihood of the risk landscape changing shape – and metrics against which to make a judgement as to whether responses are working.
For many the current biggest leadership and risk management challenge is how to bring society and business back in an environment where a vaccine has yet to be found and the global economy is in turmoil. Those who can raise their game will be better prepared to confront the challenges and opportunities of the “next normal”.
This article expands on one originally written for Strategic Risk.