Emerging risks in a world of disruption

We are living in a world of disruption. This rapid change is happening, not only in the world of business but in the day to day lives of people. Technological change has resulted in a society where there are more cellphones than people. Climate change has brought about a situation where clean potable water is becoming a precious, declining commodity. It has been predicted that two years from now, more people will have smart phones than access to clean drinking water. The world is becoming more prosperous but there is also a rise in global insecurity.

The world is facing greater disruptions in the future as we see the acceleration of change. Charles Darwin once said: “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.”

It is impossible to predict the future; but, we can analyze and understand the sources of these changes and their potential consequences. These sources of change has been termed as “emerging risks.” Although the term has been widely used, especially in the business and scientific communities, there is no consensus on how to define and govern such a risk. The term has been applied to “black swan” events (unknown events); to totally new events whose consequences are unpredictable (unknown knowns); to new events that are already happening but the consequences are still in the future (known knowns).

In this new world of disruptions, there are three groups of emerging risks that could benefit the world or literally cause global catastrophes: Technological Change; Climate Change: and Global Insecurity.

Technological change

Rapid and accelerating technological advancements and innovations especially in information technology and online connectivity have yielded tremendous benefits like making it possible to perform and accomplish tasks at a much shorter period of time at a lower cost. Billions of people now have online access to billions of people for a wide range of services such as communications, entertainment, banking and education.

However, business organizations, political entities and individuals are now exposed to “technology risks” which include but are not limited to cyber-risk, nanotechnology, Light emitting diodes (LED), autonomous machines, blockchain and artificial intelligence ( AI).

In the 2018 Allianz Risk Barometer, 42% of surveyed business organizations fear that their business operations will be hampered by cyber incidents. Large economic loss has been experienced by business organizations after a cyber crime incident due to business interruption, impact to supply chain, reputational loss and liability claims after a data breach. Business organizations may have to face class action lawsuits and payment of damages to customers for data breach.

The most talked about technology is the future impact of Artificial Intelligence. The famed scientific genius of the modern age, Stephen Hawking once said: “The development of full artificial intelligence could spell the end of the human race.” The reality is that AI poses both benefits and challenges for the world.

There are three types of AI from the business point of view: Process Automation, Cognitive Insight, Cognitive Engagement. Process automation is the automation of digital and physical tasks – typically back office administration and financial activities – using robotic process automation technologies such as replacing lost credit or ATM cards, reaching into multiple systems to update records and handle customer communications. Cognitive insight is using algorithms to detect patterns in vast volume of data and interpret their meanings such as predicting what a particular customer will buy or how a person will vote. Cognitive engagement is when customers and employees are engaged using natural language processing chatbots such as intelligent agents that offer 24/7 customer service. Addressing issues from password request to technical support questions.

Climate change

Climate change refers to the continuous warming of the world’s climate system, including its atmosphere, oceans and land surfaces. Climate change is a global threat because it will have significant impacts on human and environmental systems, including an increasing frequency and severity of natural catastrophes. The most serious impacts include natural disasters, increasing global temperatures, rising sea level, displacement, communicable diseases and decreasing biodiversity. For example, it is projected that sea levels will rise 9 to 88 cm. by 2100 due to thermal expansion of sea water and from the melting of glaciers.

Some examples of climate change risks cited by the Intergovernmental Panel on Climate change are:

• For urban planners, more frequent heat waves may increase the stress on emergency services and hospitals while more intense storms and rising sea levels may increase vulnerability of coastal housing and infrastructure.

• For the electricity sector, any increase in the number of days over 35*C and over 40*C would further stimulate air conditioning demand. Increased peak demands on generation and distribution systems will challenge system reliability. The per unit cost of electricity can be expected to increase in response to the increased peak demand.

• Climate change may affect the economic base of the local region, for instance, by reducing the viability of pasture growth and therefore carrying capacity or cause southward spread of pests and diseases previously limited to tropical areas. Climate change may also create new demands for services due to more heat wave conditions resulting in governments facing reduced ability to raise revenues accompanied by increased demand for services, ranging from geriatric care to emergency service.

Political risks

In the May 27, 2018 issue of Philippine STAR, I devoted my entire column to the “New World of Political Risk.” Once referring only to seizure of assets or political violence, political risk now refers to any political action not only by governments but any person or group with a cell phone or twitter or Facebook account can create actions that can lead to risks for a government, community or business.

When should we prepare for these emerging risks? Professor Clayton Christensen has this advice: “If you defer investing your time and energy until you see what you need to, chances are it will already be too late.”

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Young Writers’ Hangout on June 23, July 7 and 21, August 4 and 18 (1:30 pm-3 pm; stand-alone sessions). Online Writing for Adults with Tarie Sabido on June 30 (1:30 pm-4:30 pm). All classes at Fully Booked BGC. For details and registration contact 0945-2273216 or writethingsph@gmail.com.

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