Given the track record in recent years of risk management in preparing for and addressing emerging big risks, it is clear that this is a weaker part of firms' risk management capabilities. How can we better plan for future risk events? In boardrooms and discussions with their chief risk officers, leaders of firms desperately want to know: What should we be worrying about, what is the next thing that is going to blow us up?
A look at major disasters in history: one wrought by God (the biblical flood) and two by man (Hitler's 1940 invasion of France and the 1967 Six‐Day War in Gaza) can provide us with some guiding principles on planning for such events.
First Guiding Principle: Develop Multiple Scenarios and Optionality
Consider the various risk scenarios that require plans to be drawn up to address. In the example of the biblical flood (described in the book of Genesis, chapters 6 to 9), Noah knew exactly how and when the impending catastrophe would unfold. In the complex world of today that is unusual to say the least. There are usually several unknown elements—for example, when an event will take place and how exactly it will manifest.
An interesting case in history is the German invasion of France in the Second World War. France was fearful of a resurgent Germany ever since the harsh terms of the Treaty of Versailles had been imposed on Germany after its defeat in the First World War.1 The French ...