Risks to business are increasing

With crisis’ large and small happening more often, bringing reduced economic stability, only those organisations who anticipate and experiment will survive.

Before executives ‘bet the business’ on strategic decisions they must be tested and evaluated more formally.

There are two charts, the first our own on the incidence of catastrophes, the second on the perceptions of Economic Policy Uncertainty by month in the UK since 1998.

Catastrophes Impacting On Businesses

catastrophe

The chart above took public data from Wikipedia [as of December 3rd 2020] as the backbone, then checked it with Google searches on the topic.  The result was a long list of ‘major crisis’ that impacted on business generally, as examples:  UK Banking Crisis, Last UK COD War,  Latin Debt Crisis, Energy Crisis, General recessions, Chilean crisis, Israel banking, Japanese Bubble, US Savings and Loans, Black Monday, Cuban Crisis [not the missile crisis], General Recession, Swedish Bank Crisis and more.  The majority of these were ‘politically caused’.

In the Box & Whisker’ chart, the vertical x axis is the duration of the crisis in years, as an actual value or as a reasonable estimate. The horizontal or y axis is the timeline when the crisis was generally accepted to have started.

With such variables and often lack a of consensus on dates, this chart can only show a trajectory. Inevitable politicians put different spins on this, for example, the City of London and Wall Street tend to bounce back within one or two years, while wider employment recovery is still incomplete from the 2010 economic and banking crisis.

A few colleagues in the USA are now concerned with the reemergence of the sub-prime crisis behaviours.  The Securities and Exchange Commission is now taking quiet soundings as to the state of such behaviours. A perfect example of a risk waiting to happen if the politicians don’t catch it early.

I have adopted an engineering concept here that is relevant, as the Meant Time To Repair (MTTR), or on average how long to get back working again.

The dash marks indicate an event that was approximately a year in duration, where there was not enough information to better estimate a duration.

Further reading:

These two publications together give a usable background to catastrophe and risk.

A good background read for the most interested is  by Vaclav Smil, Global Catastrophes and Trends – The Next Fifty Years, 2012, ISBN: 9780262518222   A wide-ranging, interdisciplinary look at global changes that may occur over the next fifty years—whether sudden and cataclysmic world-changing events or gradually unfolding trends.

In contrast, Roger Pielke, Catastrophes of the 21st Century (2020), takes a more item-by-item view from earthquakes to supply-chain failures.  Available at SSRN: https://ssrn.com/abstract=3660542

 

Measuring Economic Policy Uncertainty

As a sense check, we used published global economic uncertainty indices which show the trend of a steady rise in economic policy uncertainty, here for the UK.  The index codifies a wide range of publications and media articles, indicating ‘public confidence’ in the stability of our national governments and economic policies.  The Brexit spike in 2016 is a good reference point for us in recent terms.

UK Economic Policy chart data at January 2021 : Source: ‘Measuring Economic Policy Uncertainty’ by Baker, Bloom and Davis at www.  PolicyUncertainty.com

Economic Uncertainty Index