It is possible to design a structured approach to risk forecasting, according to Richard Jackson, Director of Research, Economics & Country Risk at IHS Markit.
It’s more important than ever for businesses to understand the political risk environment they’re operating in. But the reality of gathering, assessing and acting on political risk intelligence is daunting.
Richard Jackson, who works in the country risk team at IHS Markit, specialises in providing political and terrorism risk analysis and forecasting services to businesses. He shared some of the tricks of his trade with delegates attending the Chubb Multinational Risk Forum.
Dealing with the vast quantity of data, including fake and real news, from social media, traditional media, broadcast media and human sources presents a challenge in itself. “How do you cut through the noise to find the signal? How do you identify what’s important to understand the risk environment you’re operating in? And even more important than that, how do you do it in a timely enough fashion that you can make those judgements, make that analysis and make those forecasts such that the people who have to make decisions based on them, have enough time to make those decisions?” he asked.
Jackson explained the need to collect data, identify and analyse it – and then provide an understanding of how the risk environment looks, without bias. “As human beings, we look for information that backs up our view of the world. If you see something that doesn’t fit in with your world view, the tendency is to ignore it. Or to interpret it in a way that makes it fit your world view,” he said. “It’s not a criticism, that’s how human beings have been shown to work by scientific studies.”
Key elements
There are several key elements to setting up a risk management data system, Jackson said. The first involves identifying the intelligence needed to assess threats or risks and to inform critical decisions.
The key questions are:
-What is it you want to know?
-What risks are you worried about?
-What sectors are you worried about?
-What countries are you worried about?
-Where are your assets?
-What’s your exposure?
-What’s your risk appetite?
“The more detailed your questions, the more precisely you can collect information against that requirement,” Jackson said. Once the questions have been identified, the next step is to find the most efficient and effective way of collecting the intelligence required to ensure early warning and crisis prevention. “Take the specific question, ‘What is the risk posed by fighters returning from Iraq and Syria?’. Where do I start collecting data about that? I can’t really. But which other groups have pledged allegiance or support? Well, I can collect that. I can collect statements. I can collect statements put out on Jihadist web forums. I can find out from official police reports how strong or what their capabilities are. I can start to piece together useful intelligence that’s going to let me answer this question,” he explained.
The intelligence should be monitored over time rather than acted on immediately, to avoid jumping to any conclusions. “A group has to obtain explosives. A group has to get a trigger. A group has to get a timer potentially. A group has to get the knowledge to be able to pull all those bits together. A group has to do all that without being caught or identified,” Jackson said.
It is possible to break down these hypothetical steps into individual elements that data can be collected against, Jackson explained. “How many arrests have there been for people trying to buy large quantities of bleach? How many arrests have there been for people posting things on Twitter? “By setting up a structure, it’s not perfect and you don’t get rid of confirmation bias, but it gives you a better chance of doing it well.”
Terror threat identified
To illustrate the effectiveness of a structured data collection process, Jackson used the real life example of a shipping client who wanted to know if its risk exposure in the Bab Al-Mandab Strait between Yemen on the Arabian Peninsula and Djibouti and Eritrea in the Horn of Africa would grow or reduce over the next 12 months.
Having researched rebel groups in Yemen, IHS set up a very simple five indicator per-scenario model to monitor in the categories:
-risks to commercial shipping increase;
-risks to commercial shipping decrease;
-risks remain at the current level.
In July 2016, all of the risk indicators for the ‘risk increasing’ were triggered and then remained the same through August and September. Then, at the end of October, three months after the main indicators tripped, there were two RPG attacks on tankers off the Yemeni coast. “The example shows that with a structured approach that tells you when risk is changing, you can do something quite impressive,” Jackson said. “The shipping client effectively had three months to make a judgement on the risks involved in using the route that was based on intelligence.”
Looking towards 2017
Asked for his opinion on what is likely to drive political risk over the coming years, Jackson picked out the growing role of technology and automation in particular. “One of the building blocks of change is going to be automation and the increased use of technology to do jobs that humans do today,” he said. “There are knock-on implications for employment, under-employment and societal change, even driving the movement of people from one part of the world to another.”
Jackson said that the potential for automation is no longer limited to physical or manual jobs and will extend to other areas of employment, including analysis. “So automation is not just a blue collar issue, it’s potentially going to be a collared issue,” he said.
