Making connections

Risk interconnectivity—the link between one risk and its effect on a host of others. It’s one of the hardest things for risk managers to come to terms with. But as organisations increasingly try to prepare for the consequences of risk (rather than influencing whether or not they arise in the first place) it is even more important for them to understand how one thing affects another.

Of course, trying to map every single risk linkage throughout the entire organisation is a life’s work in itself. But offering insights into what the knock on effect could be of a certain development or course of action in conjunction with other risks the company is running and the ultimate impact can provide useful strategic advantage.

Understanding the direct and indirect links between risks can help companies seize opportunities. Take the rising significance of climate change and the link with water security. A lack of access to water can have a huge number of effects and the repercussions can reverberate globally. Extreme stress on clean water supplies can lead to food crises, for example, or the spread of disease. Or it can contribute to political instability. But of particular economic significance is the use of large quantities of water in the production of oil. If sufficient water is not available oil production will decrease and operations will be interrupted, which could significantly affect global oil supply and prices.

These new challenges are stimulating innovative business ideas. General Electric (GE) has been quick to use its engineering expertise to help the oil industry reduce water use. Saudi Arabia, one of the Middle East’s fastest growing economies, faces a growing demand for water to feed its massive oil production. But water is scarce in the Middle East. Therefore Saudi Arabia has mandated that 11% of its water should come from treated waste supplies. So GE, which has been working in the country for 80 years, is turning its attention to water reuse technology.