5 Key Types of Global Risk

30 August, 2024

Risk is an ever-present fact of life that underpins each decision we make. On an international scale, how organizations and nations plan for and respond to uncertain scenarios can affect the well-being of entire populations. For example, when Turkey and Syria were struck by catastrophic earthquakes in 2023, the event resulted in the loss of over 50,000 lives. Following this tragedy, destruction of critical infrastructure also led to the disruption of regional economies and various industries. The widespread impact on housing, transportation, and other essential services highlighted the vulnerability of the affected regions and the need for more robust disaster preparedness.

It is vital to understand the wide variety of factors that can disrupt governments, spread diseases, impede crisis management and recovery, or limit the availability of resources. In addition to natural disasters, political instability is a prominent concern for business leaders. As Ernst & Young analysts noted, uncertainty surrounding the 2024 US presidential election cycle may yet again disrupt foreign asset markets, causing widespread economic anxiety.

Graduates from a Master of Arts in Global Risk program understand how to analyze threats like these with quantitative and qualitative techniques, as well as how different types of risk interact and combine on a global and regional scale. By developing rigorous models and evaluating their findings alongside insights from qualitative research and in-depth knowledge of specific regions, risk management professionals can inform and guide decision-making with both a nuanced and a big-picture perspective.

Global risk experts spend their careers addressing complex situations with worldwide implications for institutions and livelihoods. In this article, we’ll explore five of the most important forms of risk that these professionals will confront.

Geopolitical Risk

Good relationships between nations are crucial for communication and collaboration in response to shared challenges. Local government agencies, businesses, and nonprofits must also stay alert to the risks stemming from both international conflict and economic competition. Critical issues such as border security, human rights, intellectual property, public health, international terrorism and nuclear proliferation can all lead to conflicts that pose serious challenges for organizations and their suppliers.

Experts around the globe are concerned about the geopolitical risks posed by insufficient multilateral cooperation as well as internal conflict within states. A clear example of how poor international cooperation can create geopolitical risk is the weaponization of economic policy: by leveraging economic tools such as sanctions, tariffs, and trade restrictions, nations may pursue geopolitical goals that come at the cost of global stability. For instance, US tariffs on China have exacerbated international tensions and contributed to widespread economic disruption as well as trade diversion.

Global risk students, scholars, and professionals must be able to draw on a range of research and analysis tools to successfully assess and address the complexity of these risks. For example, the work of researchers like Matthias Matthijs, director of the MA in Global Risk (online) program at the Johns Hopkins University School of Advanced International Studies (SAIS), uncovers how these geopolitical divisions shape the management of current and future issues.

Matthijs studies the impact of international relationships on resilience and the factors that determine whether nations recover quickly from crises or become overwhelmed by their challenges. For example, he has examined how political and economic disruptions impact regional and global stability, focusing on the impact of Brexit on the United Kingdom as well as the economic leadership role both the United States and Germany played during the global financial crisis of 2008-9 and the euro crisis that lasted between 2010 and 2015.

Matthijs’ research highlights the complex challenges that European integration, economic crises, and contentious domestic politics pose to advanced industrialized nations, including the strength of their democratic systems. Geopolitical risk experts like Matthijs are in a position to observe, analyze, and propose solutions for the issues that face nation states as they seek to maintain societal cohesion amidst economic, financial and political turmoil.

Economic Risk

Every organization — whether public, private, or nonprofit — functions within a broader economic context and must anticipate financial, trade or monetary conditions that could impact their work. These changes can include shifts in exchange rates, new regulations, protectionism, debt crises, and political unrest. Through quantitative modeling and analysis, organizations seek to evaluate the security of their investments and plan for future volatility.

Risk professionals examine a variety of metrics to see how different ventures could be influenced by macroeconomic factors in a nation or trading bloc. For example, a sovereign credit rating estimates how likely a country is to default on its national debt. That rating accounts for a range of indicators, including per capita income, gross domestic product expansion rates, annual inflation, and the national deficit.

However, it’s important not to limit analysis to traditional economic models, which can miss crucial qualitative factors like private sector performance, changing public policy, and resulting strategy. For example, the ongoing property sector crisis in China began in earnest when a major company went into default. A comprehensive risk analysis includes examining the performance, debts, and mitigation strategies of private sector companies on top of various circumstances that can lead to economic crisis.

Economic interactions among nations present a wide range of business challenges. In addition to perennial threats such as debt crises, fluctuating exchange rates, and regulatory shifts, new concerns continue to emerge. For instance, supply chain disruptions, which often cause manufacturing delays and lead to increased costs, have become increasingly common.

Furthermore, when international challenges combine or intersect, they create widespread problems with cascading effects. A national debt crisis in a key supplier country, for example, might slow or halt production, resulting in shortages and supply chain disruptions that have global consequences.

These vulnerabilities underscore the need for robust risk management strategies. By closely monitoring economic indicators, including sovereign credit ratings and GDP growth, organizations can predict potential disruptions. They can then mitigate these risks by developing contingency plans, diversifying their supply bases, and building more resilient systems to ensure operational stability.

Environmental Risk

Environmental dangers are another focal point for global experts. Human activity such as industrial activity, transportation, mining, agriculture and land development can lead to negative outcomes such as public health threats, resource depletion, and destruction of essential habitats. By analyzing these situations, risk professionals can help both business and government entities meet existing regulations and recommend more sustainable strategies and policies.

For instance, risk managers may closely examine the chemical hazards associated with an industrial site or process. When poorly managed, chemical dangers can have serious implications for the safety of on-site workers, nearby residents, and local wildlife. The United States Environmental Protection Agency (EPA) assesses these environmental risks based on metrics such as:

• Chemical contaminants expected to be found in the air, water, or soil
• The level of toxicity of each chemical
• How much exposure humans or animals will have to these contaminants

In addition to addressing current hazards, knowledge of environmental risk also helps organizations plan for the future. As nations around the world take steps to combat climate change and invest in renewable energy, an understanding of environmental risk enables businesses and government agencies to develop long-term strategies that bolster resilience, mitigate dangers, and uphold their commitment to global citizenship. Beyond the ethical and practical benefits, adopting practices that are friendlier to the environment can also offer immediate financial advantages through government subsidies or increased brand appeal to eco-conscious consumers.

To facilitate this strategic effort, risk professionals will apply their skills in analysis, modeling, and research. Close collaboration with environmental science experts and business leaders can also provide valuable insight into how manufacturing processes and supply chains contribute to carbon emissions or plastic waste.

Societal Risk

A singular event such as an industrial accident or natural disaster can endanger a whole community, leading to loss of life, property damage, and interruptions to essential services. Considering these catastrophes through a lens of societal risk allows experts to identify the systemic factors that influence disaster response.

The societal risk model plays an essential role in decisions about emergency preparedness and response in complex areas such as public health. Methods like risk modeling and life cycle analysis can inform the measures taken to mitigate system collapse, while analyzing broader contextual information refines those assessments and makes response strategies more effective.

Consider the structural failures in the United States healthcare system that were exposed by the COVID-19 pandemic. A geopolitical risk expert might focus on the disjointed government response to the pandemic as a reason for these failures, while an expert using a societal risk perspective would holistically examine the entire healthcare system, evaluate the probability of future public health emergencies, and contemplate specific adjustments to operations and personnel that could prevent poor responses going forward.

Assessing the probability of catastrophes and anticipating their consequences equips systems to heighten resilience and take proactive steps to mitigate risk. Relevant information might be used to develop more robust emergency procedures, form collaborative crisis response teams with other organizations, earmark funds for repair costs, or inform the public about emergency preparedness.

Technological Risk

Digital technology has become integrated with every aspect of life, especially within the realm of international business and politics. As a result, system failure concerns due to technical glitches or cyberattacks are ever-present for corporations, financial institutions, and government agencies. When major organizations fall prey to a data breach, ransomware attack, or phishing scam, the economic consequences can be disastrous, such as when a recent ransomware attack on Change Healthcare caused severe disruptions for providers across the nation. Managing this incident has cost UnitedHealth over $2 billion so far.

Technological risk incidents can also have national or international repercussions. The theft of over 34 million Indonesian citizen’s passport records, for instance, compromised both the Indonesian Immigration Directorate General as well as citizen privacy.

On top of impacts to operations, finances, and brand reputation, failure to protect confidential information or to respond appropriately to a beach can also expose organizations to legal problems such as civil lawsuits and government fines. In some cases, this negligence could even lead to criminal charges.

Given the frequency of cyberattacks and their potential for severe consequences, it’s more critical than ever for organizations to mitigate their vulnerability to these events. In this context, risk management has become essential.

While information technology is a specialized field, risk management professionals do not need to be IT experts to help prevent and handle cyberattacks, system failures, and similar events. Risk managers typically collaborate with IT professionals and leverage their technical expertise to develop a unified contingency plan. These plans can be intricate due to the numerous technical issues they involve. For instance, McKinsey identifies several sub-disciplines that underwrite information technology risk management strategies:

• Information and cybersecurity
• Resilience and disaster recovery
• Vendor and third-party management
• Project and change management
• Architecture, development, and testing
• Data quality and governance
• IT compliance

In addition to IT and cybersecurity experts, risk managers may collaborate with corporate leaders, communications teams, and other relevant professionals to develop a multifaceted preparation approach.

Managing a World of Risk

In our interconnected world, businesses rely on supply chains and labor forces spread across multiple continents, while governments must cooperate to address dangers like violent conflicts and climate change. This is why it’s crucial for risk management professionals to nurture a global, multi-faceted perspective as they analyze our most urgent challenges and promising opportunities.

By discovering data-driven insights, implementing powerful decision-making frameworks, and considering the complexities of globalized interdependencies, experts can guide strategic planning even under highly uncertain conditions. An MA in Global Risk offers the specialized knowledge and quantitative skills necessary to make sense of the geopolitical, economic, environmental, societal, and technological threats that will shape our world’s future.

About the Master of Arts in Global Risk (online)

In the Johns Hopkins School of Advanced International Studies (SAIS) MA in Global Risk (online) program, students gain a thorough grounding in quantitative and qualitative risk management tools, modeling, and decision-making frameworks. Our cutting-edge curriculum focuses on the specialized knowledge and research skills to analyze complex situations, mitigate dangers, and take on leadership roles.

Featuring a faculty of groundbreaking researchers and experienced leaders, the Johns Hopkins SAIS offers a supportive environment that encourages collaboration and ongoing improvement. Our students participate in two in-person residencies and have opportunities to expand their professional networks. Johns Hopkins University is ranked #6 for best national university and #13 best global university, according to the U.S. News & World Report and was named one of the best schools for international relations by Foreign Policy Magazine.

Disclaimer: This content has not been peer reviewed and is for informational purposes only.