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Risk analysis

Risk management is a well established profession with many sophisticated methods being applied, particularly in areas such as engineering, occupational health and safety, security and resilience, infrastructure planning and insurance. This section focuses on the important contributions that futures analysis can make towards anticipating and managing future risks.

Types of risk

Risks are often classified as follows:

  • Hazards - the results of nature or technical failure, including human error;or
  • Threats - the results of terrorist or criminal activity (including state sponsored)

The risk from a hazard or threat is the combination of the likelihood of it occurring and the impact that it may have.

The high risk hazards or threats are vital for planning. The high impact low probability events are also important as they can be difficult to anticipate but have large impacts, resulting in potential major reputation damage.

The contribution of futures analysis is influenced by the type of risk.

  • Unknown unknowns – Are often referred to as ‘black swans’ (Taleb 2006). These are surprising events or out-liers. In practice there are few events that are truly unknown unknowns. Futures analysis, particularly horizon scanning for weak signals, can help to minimise such surprises.
  • Unknown knowns – These are expected events such as earthquakes, but which are unpredictable in timing or intensity but can have a high impact at a specific place. Such events usually have probabilistic forecasts; and advances in science and modelling can help to move them towards known knowns.
  • Known unknowns – These are events that can be predicted to occur, such as European elections, where the outcome is usually increasing uncertain the further they are into the future. An understanding of what is driving change and weak signals of changing circumstances can help to reduce the uncertainty. Scenarios can also be used to explore different potential outcomes.
  • Known knowns – These are predictable events, such as floods, where the system that causes them is understood. The likelihoods and impacts of these can be modelled for many sets of circumstances.

Applying futures analysis

The application of futures analysis techniques depends on the nature of the risk and the data available. They can be applied to the analysis of the likelihood, impacts, contingency planning and managing the response.

Some of the most common applications of futures analysis are:

  • Horizon scanning - that can provide signals of emerging risks and changes behaviours of systems, including peoples’ responses.
  • Drivers’ analysis – that is particularly valuable in assessing the likelihood of future risks
  • Scenarios – that can be a powerful tool for opening up minds to new and emerging risks. They also provide a ‘safe environment’ for discussing then. They can also be used to explore the different development paths (timelines) and the associated risks. Scenarios can also be used to develop potential future events that should be considered for contingency planning. In this case the worst case practicable impacts are usually assumed
  • System thinking - is particularly important for risk analysis. Most risks are the result of complex interactions, often at the boundaries between different areas. This can be developed into system dynamic modelling, which is a powerful tool for both anticipating risks (e.g. an epidemic) and planning the response to an event. They can also be used for simulation for planning, exercises and testing responses.

Simulation of flu epidemic www.business-laboratory.com.

 
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