What is MacroRisk?

We face global or macro risks in common

Unlike VAR (Value At Risk), global or macro risks affect us all. They are seemingly disconnected and virtually impossible to compute or model. Or are they?

The World Economic Forum listed 10 macro risks in 2016 but arguably they fall under these broad headings:

  • System Failure – of the political economy’s infrastructure which renders it inoperable
  • Institutional Failure – banks, media, governments, legal systems, commerce, military, or security etc.
  • Economic Collapse – usually heralded by markets collapsing, leading to poverty and starvation
  • Market Collapse – in today’s globalised world, in a crisis, most markets are correlated
  • Natural Disaster – which could precipitate any or all of the above
  • War – which again can impact systems, institutions and markets

In facing these risks we, both companies and people, are not competitors but potential victims of common threats. And yet, in seeking to assess such threats, we rely on systems and institutions built on competition, rather than co-creativity.

Macro risks are interconnected

We tend to view individual threats as discrete, disconnected risks and categorise them accordingly. However, one cannot ignore, in spite of the complexity, that all threats (and opportunities) are connected. There are commonalities – in terms of people, institutions, issues and events – between the factors involved in any of the above broad risks but in categorising and separating threats, we often fail to see the connections and influences. The political economy is a system, comprising many subsystems which influence and affect each other and the whole.

Even though natural disasters are usually unpredictable, they are often linked to other risks, if not in terms of causes, certainly to the extent of their effects and responses to them.

MacroRisk

In short, MacroRisk includes the most important “unknown unknowns”, seemingly beyond our control but which may have a dramatic effect on the lives of ourselves, our clients, companies, families, communities and institutions.

The MacroRisk Connect Programme helps us co-create a shared understanding of macro risks.