An increase in protectionism and the emergence of disruptive new business models are among the top risks facing firms over the next decade, according to Risk 2018: Planning for an unpredictable decade, a newly released Economist Intelligence Unit survey and report, sponsored by BT.
The report is based on a survey by the Economist Intelligence Unit of more than 600 board-level executives, in which respondents were questioned about their perception of the likelihood and severity of 46 risks, and asked how prepared they believed their organizations would be to face them. Responses were aggregated and mapped onto a grid (see below), with the importance of each risk (a combination of its severity and likelihood) represented on one axis and levels of preparedness among companies on the other.
The survey highlighted 12 risks as ”tier one” in nature. They are of particular concern because they combined high levels of severity and likelihood with relatively low levels of preparedness. The risks identified as “tier two” were classed as such owing to either the low perceived severity and impact of the risk, or because of very high levels of preparedness. The 12 “tier one” risks are:
- Retrenchment of globalization/increase in protectionism
- Oil price shock
- Asset price collapse
- Emergence of disruptive business model
- International terrorism
- Unexpected regulatory change
- Global recession
- Instability in the Middle East
- Increased competition from emerging market companies
- Talent shortages
- Climate change
- Increased industrial pollution
Given these threats, the report goes on to examine the various ways in which companies can manage potential risks and plan for the future.
"Faced with a highly uncertain business environment, executives are seeking guidance on how major trends and risks might affect their business over the next decade," says Rob Mitchell, editor of the report. "By comparing perceived levels of severity and likelihood with levels of preparedness for a diverse set of risks, our survey illustrates a number of areas where risk managers and executives might need to sharpen their focus over the next ten years."
François Barrault, chief executive of BT Global Services said: “This report highlights the sheer breadth of risks that are now primary boardroom concerns. Globalisation is driving risk management to become an issue of strategic importance. Companies that integrate their risk planning and infrastructures will be more resilient and will reap the rewards in this more complex trading environment.”
The Economist Intelligence Unit Long-Range Risk Grid
About the grid
The Long Range Risk Grid indicates the perceived importance of risks (a combination of their severity and likelihood) on the horizontal axis, and the level of corporate preparedness on the vertical axis, based on the findings of the survey. The risks that appear to the right of the diagonal line are those where preparedness is low, compared with the perceived severity of the threat. Risks falling into the grey shaded area were categorised as "tier one" risks — events viewed as being both fairly likely, and ill-prepared for.
Other key findings of the report include:
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Climate change is not seen as a particularly severe risk, or one that is likely to cause an impact over the next ten years. Despite widespread media and governmental attention on climate change, respondents do not expect environmental risks to be particularly severe over the coming decade. However, the fact that the majority of respondents exhibited a low level of preparation towards climate change means that it has been classified as a "tier one" risk.
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Emerging markets are seen as both a threat and an opportunity. Respondents expect increased competition from emerging markets to be a major worry over the coming decade, but they also see many of these countries as a key source of growth. The majority of those surveyed named China as the country where they expect to see the biggest increase in revenue contribution, followed by Europe (including Eastern Europe) and Asia-Pacific (excluding India and China).
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Scenario planning is a widely used tool to consider future risks. As companies look to an uncertain and unpredictable future, more and more are using techniques such as scenario planning to help them map out the road ahead. Among our survey respondents, 26 percent say that they use scenario planning on a regular basis and 41 percent say that they use it on an ad hoc basis. Out of the remainder, 29 percent say that they have plans to use the technique in the future.
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Risk management will become a more strategic activity. The trend for risk management to be considered a strategic activity is expected to continue into the next decade, with two-thirds of respondents saying this area will become more important as a strategic tool, and 58 percent expecting it to command more attention from the boardroom.
Risk 2018: Planning for an unpredictable decade
is available free to download at: www.eiu.com/sponsor/BT/risk2018About the report
Risk 2018: Planning for an unpredictable decade is an Economist Intelligence Unit report, commissioned by BT. The Economist Intelligence Unit’s editorial team conducted the interviews on which the analysis is based and wrote the report. The survey consisted of 600 senior executives from around the world, of which three-quarters were C-level, or board level and the sample included more than 200 chief executive officers. The survey included companies from a variety of sizes and from a wide range of industries.About the Economist Intelligence Unit
The Economist Intelligence Unit is the world leader in global business intelligence. It is the business–to–business arm of The Economist Group, which publishes The Economist newspaper. The Economist Intelligence Unit provides geopolitical, economic and business analysis on more than 200 countries, as well as strategic intelligence on key industries and management practices. With over 300 full–time professionals in 40 offices around the world, supported by a global network of more than 700 contributing analysts, the Economist Intelligence Unit is widely known for its unparalleled coverage of major and emerging markets. More information about the Economist Intelligence Unit can be found at www.eiu.com.
