Warren Black considers how coronavirus may be the stress test which finally unmasks the myths, vulnerabilities and follies of the global risk management discipline
The 2020 Coronavirus pandemic is now being called the most significant, global threat since World War II.
The virus first emerged in late 2019 and within five months more than two million cases had been reported in over 200 countries, resulting in more than 130,000 deaths and with no identifiable end in sight. The pandemic has since led to massive socio-economic disruption, including widespread societal fear, supply shortages and economic instability.
There is no denying that Coronavirus (COVID-19) has become the ultimate stress test for our global community. How we respond to this pandemic will ultimately determine our species’ future - yes, our chosen responses are that big a deal.
Although it is still presumably early days in our global fight against COVID-19, what is almost certain is that the pandemic is going to test the validity of the global risk management discipline.
As governments, organisations and communities world wide grapple with the both the societal and economic impacts of this pandemic threat, more and more will look towards the practising risk management community for help in developing valid mitigations.
From the theoretical to the practical, all aspects of risk management better practice will get an opportunity to stand before the spotlight at some point, during this trying time.
Coronavirus thus may very well be the high-profile case trial that brings long overdue credibility to the global risk management discipline. Or equally this could be the load test that completely obliterates the myth of it all. It’s still too early to say for sure which way the pendulum will swing.
Consider the following observations so far:
Sleepwalking into crisis - how the global risk management community failed to plan for the inevitable
For the past 15 years, the World Economic Forum (WEF) has published an annual Global Risk Report, which it releases around February.
In most years this report presents a factual, albeit cautionary tone, to highlight those big ticket global risks which organisations need to be paying particular attention to - the February 2019 version however, carried a significantly more sinister tone. It would seem that by 2019, the WEF had lost patience with the world’s major institutions due to their perceived lack of pro-activity in fronting up to our planet’s most prominent threats.
At the time, the WEF appeared particularly concerned that our world’s major governments had become far too distracted by less material phenomena such as Trump Politics, Brexit and Chinese Trade Wars, and had subsequently taken their eyes off of those high-impact threats which really mattered.
The WEF argued that there was a lack of cohesion in addressing such potentially catastrophic global threats as climate change, growing economic disparity, strained natural resources and our population’s increasing exposure to infectious diseases. In fact for at least five years prior to 2019 (when it was rated #10 for Impact), the WEF had been warning on the plausibility of a mass scale, global pandemic.
The report ominously warned that despite the increased intensity of the global risk landscape, comparatively few organisations had invested in the risk management capabilities required to respond effectively to emerging global threats - as a result, many organisations now existed in a state of self-induced vulnerability whereby they were “sleepwalking into crisis”.
Perhaps, the most alarming aspect of the COVID-19 threat so far has been just how unprepared we all were. Almost every response aspect has been messy; our global co-ordination, our leadership communication, our understanding of the threat, our public calm, our supply of critical provisions, the ongoing protection of our economy… all just reactionary and fragmented.
When everything adjusts back down to a new normal (post COVID-19), the global risk management discipline is going to have to do a serious postmortem on exactly how is it that we all collectively failed to prepare for a known threat that was this inevitable? Most importantly, we will need to review our planned responses for all those other inevitable threats that are still lingering out there.
Lies, damned lies and statistics - how probabilistic risk management became the loudest voice in determining our global response
By mid March 2020 almost everybody had heard of our need to “flatten the curve”. It was believed that by limiting travel, closing borders, quarantining communities and banning mass gatherings we could proactively slow down the virus’s contagion rate.
Social distancing, geographic isolation and institutional lock-downs have since become our world’s primary response to mitigating this pandemic, but what is the actual science behind this approach and how did it become the loudest voice in our global response?
In its simplest explanation; our global response is proactively trying to avoid what is referred to in probabilistic risk theory as a “fat tail” event - that is, an emerging threat with a relatively high probability of an extreme outcome (in this case, a catastrophic number of deaths). Probabilistic risk methods, seek to quantify a range of scenario based outcomes such as best, median and worst case - a fat tail is often the most extreme scenario.
Probabilistic risk techniques are not new, but they are contentious. The idea that we can predict complex-uncertain outcomes to any degree of confidence, through some form of mathematical crystal ball has been attracting debate for centuries. Regardless, there is no doubt that right now, it is the proponents of probabilistic risk management who have the speakers podium on how to combat COVID-19. The keynote speaker in turn, appears to be Nassim Taleb (Black Swan, Antifragile), who has long argued the need to aggressively mitigate fat tails by ignoring traditional cost vs benefit analysis.
It now seems that it is the proponents of this line of thinking, which institutions worldwide are listening to in their sanctioning of social distancing and flattening the curve. The shear speed and aggression that social distancing has been applied in recent weeks across many countries, reflects heavily on Taleb’s “ignore the cost and go all-in” point of view.
Now although Taleb’s fat tail argument may be theoretically perfect, it is practically flawed. No real-world organisation with its’ limited resources and competing priorities can afford to ignore the cost of executing one particular strategy over another. Also by going all-in, organisations tend to exhaust their resources quickly, whilst simultaneously creating vulnerabilities elsewhere.
What this means for our fight against COVID-19 if that if our global leaders don’t weigh out short term flattening the tail decisions with longer term economic security decisions, then the next epicentre of the coronavirus will not be any specific geography, but rather our global economy.
Clearly the global risk management community has not yet ironed out all the wrinkles associated with probabilistic risk responses to mitigating fat tail threats. Only time will tell what transpires from this particular approach to mitigating CoV19, but at some point in the future the global risk management community is going to have to do a post event, lessons learnt analysis of how we legitimately approach (and prioritise) our risk management responses to rapidly emerging extreme events.
The edge of chaos - how complex systems thinking appears to be lagging in our leadership’s responses
As our modern working world gets more and more systemically complex, the more the invested risk management community will be forced to start looking at risks with a complex systems’ mindset. The coronavirus phenomena, although only in its early stages, has already demonstrated why this argument is true.
Consider how the coronavirus pandemic, our human society and the global economy are all scientifically valid, Complex Adaptive Systems. Thus any institution which desires to better understand how to control the complex interactions and relationships that emerge between these three collaborating systems, will need to look towards the complexity sciences for answers.
Without getting too deep into the theory; complex systems are highly energised entities, comprising of an advanced number of contributing parts which are all continually interacting with and adapting to, their changing environmental circumstances. If you can understand this basic description of a complex system then you can perhaps begin to understand (and possibly even control) complex risk phenomena.
For example, consider how Lorenz’s now famous “Butterfly Effect” concept might help to explain how a seemingly insignificant event in one area of a complex system (i.e. a viral outbreak in remote Wuhan, China), rippled and compounded to create momentous, possibly even uncontrollable, impacts elsewhere within the global system.
Equally, the complex systems concepts of non-linearity and fractal relationships might help to explain why COVID-19 appears to have spread much quicker and more intensely in those countries with greater resources and controls (Europe, North America) but slower and more sporadically in those with limited resources and weaker controls (Africa, Central Asia, Central & South America).
Further, the complexity concepts of emergence and strange attractors may help to explain how the COVID-19 outbreak has led to a worldwide shortage of toilet paper but not of tinned goods nor bottled water. Clearly there is some unique irrationality at play within complex systems that can not be controlled by conventionally linear, risk methods.
However, perhaps the most important complexity concept in addressing this global pandemic is that which is known as “The Edge of Chaos”. The Edge of Chaos is a theoretical tipping point inherent within all complex adaptive systems - it is that point where the system tips over from being reasonably controllable (stable) to becoming wildly uncontrollable (chaotic).
Unfortunately, this key concept does not appear to have translated well into our global leadership’s responses nor communication. There seems to be an inherent failure to recognise that every message and tactical response they endorse, sends signals (yet another complexity concept) rippling through our complex societal systems which either encourage us all to step one step closer to, or one step farther from, the Edge of Chaos.
World leaders need to understand that right now our society is potentially edging ever closer to that chaotic tipping point. People are isolated, uncertain and anxious - all factors which could easily unleash societies’ most extreme behaviours. By imposing aggressive social distancing, millions of people have been forced into involuntary isolation without any consultation, exploration of alternatives nor agreement of an acceptable time limit.
How long will these people willingly self quarantine, keep their businesses shut or remain unemployed, before they start aggressively protesting the infringement on their personal freedoms? Governments thus will need to tread particularly carefully from here on out, as one poorly informed move could ignite a series of chain reactions which escalates over the Edge of Chaos.
Building on this, no institution (nor risk professional) can seriously claim to be adept at controlling complex phenomena, if they don’t understand what the basics of complexity management are. Thus, if the global risk management profession has any hope of succeeding in our future working world; then once things settle down to a new normal, we are all going to have to ask some serious questions as to how well our profession understands the management of complex situations (aka our complex systems thinking).
Resilience - how “bouncing back” won’t help in the fight against COVID-19
Resilience is the ability of an entity to respond intelligently to changing environmental circumstances. Unsurprisingly, resilience has now become the goal of all our global coronavirus risk management efforts.
The need for our society and participating organisations to become resilient in the face of potentially disruptive COVID-19 forces, has been spoken about extensively from almost every political podium, news broadcast and personal blog (mine included). The current challenge for the risk management discipline however is that historically this profession has promoted an incomplete and limited view of resilience - one which will not suit our fight against this global pandemic.
More specifically, the risk profession has historically described resilience as being an organisation’s ability to bounce back to a business as usual (BAU) state after experiencing some form of disruptive event (eg a disaster). This is a view that is most commonly evidenced in the pages of many business continuity and disaster recovery plans.
The problem with this particular view of resilience however, is that it ignores the possibility that perhaps the reason the disruptive event was allowed to manifest in the first place was because the organisation’s BAU state was actually flawed or vulnerable? In such a case, bouncing back to a pre-existing state of vulnerability isn’t really a resilient solution.
Clearly this particular definition of resilience does not suit the way our society, nor our participating organisations, should respond to COVID-19 - a more contextually valid view of resilience is thus required.
The coronavirus pandemic is almost certainly going to change the way modern organisations (and the risk management profession) think about organisational resilience.
The shear number of organisations that will either evolve or succumb to natural economic selection during this time, will shift the risk profession’s mindset as to exactly what modern resilience is and is not. Equally, those historical methodologies designed to bounce an organisation back to an existing state of vulnerability will have to give way to methodologies designed to make organisations more dynamically agile in the face of disruption.
A silver lining… how complex systems grow stronger from disruption
Coronavirus has to date (and will continue for a while yet) to be our generation’s biggest test. As tragic as it has been for many, there is a silver lining.
Every complex ecosystem (including human society) benefits from a little revolution now and then - it is what makes such systems stronger for the long run. Disasters, disruption and systemic shocks force us to acknowledge our vulnerabilities and to evolve our existence to a higher state. Coronavirus will almost certainly do the same for the human species as well as our contributing organisations, making us all collectively stronger for the experience.
For the risk management profession specifically, coronavirus is going to provide a monumental case lesson in what can legitimately be considered effective risk management in this modern age of increased systemic complexity, social connectivity and perpetual disruption.
This global pandemic will undoubtedly force our profession to acknowledge our retained myths, vulnerabilities and follies - it will also force us all to engage in new thinking and practices, something the risk profession has not always excelled at.
At the very least, coronavirus is going to force governments, institutions and organisations alike to take a serious look at their invested risk management capability and ask one simple, question of it: Do we currently retain a risk management capability, which enables us to respond intelligently to our working world’s most complex challenges?
In turn, practising risk managers are going to need to do some serious self reflection as to where their particular capabilities lie. Those who don’t have demonstrable understanding and skills in uncertainty management, probabilistic risk methods, analytical data modelling, natural systemic resilience and complex systems thinking are going to be found increasingly wanting in this brave new world.
Most positively however, is how coronavirus is already demonstrating to many organisational leaders that risk management is not a simple-state game, it is in fact a highly-complex and technical discipline. Hopefully this will translate into organisations taking their future risk management investments and hires that much more seriously.
In conclusion, what coronavirus will almost certainly teach us all is that those who don’t evolve their capabilities to account for an age of advanced risk; are simply allowing themselves to remain vulnerable to the complex-disruptive forces of the modern, working world.
Welcome to the new age… is your risk management capability ready?