The novel corona virus (COVID-19) pandemic is an extremely severe health and economic crisis that is impacting our lives to a major extent, and as we continue to tackle the crisis, we must simultaneously also absorb a crucial lesson provided by it in risk management.
Several aspects make COVID-19 a very distinctive crisis. First, it is a highly unsystematic and uncharacteristic fusion of a deadly disease with an economic catastrophe. Second, its burgeoning growth has seen it become a global phenomenon in a very, very short period of time. Third, as economists would call it, it is a severe shock on both supply and demand sides, an unparalleled global macro-economic shock of uncertain magnitude and duration. The uncertainty is what makes it so very dangerous. Fourth, its impact is multi-faceted and includes infection, death and loss of loved ones, human distress in many forms (such as job losses, lack of food and nutrition, loss of education, even if it may be temporary), greater indebtedness, severe global recession caused by a deep prolonged (uncertain) contraction in economic activities, brutal corporate (financial) distress, huge stress on the financial systems (thereby making the supply of credit to the real economy a major concern), stoppage of flow of capital due to risk aversion by investors and other stakeholders and so on.
Most of us did not even anticipate the occurrence of such an event, let alone think about its devastating impact even a few months ago. No government, policy maker or corporate leader saw it coming. Even multi-laterals like the International Monetary Fund (IMF) and the World Bank, the United Nations system, central banks in different countries, multi-national corporations, medical professionals, pharmaceutical companies and others did not envision such a crisis. And most importantly, the various intelligence agencies—be it the CIA, SIS (MI6), Mossad or others—did not foresee the eruption of a pandemic of such a proportion simultaneously, also causing widespread economic devastation and destruction.
This shows a serious lacuna in our risk management process and consequent decision making based on this process. And the occurrence of a low probability, very high impact event like the current extremely severe health and economic crisis calls for an entirely new and eclectic approach to risk management and decision making at federal, state and local governments, private and public corporations and other stakeholders like multi-laterals, bi-laterals, start-ups, banks, regulators and many other stakeholders.
What is the key lesson from a risk management perspective for all these stakeholders? The key lesson is that our risk management process must not be bothered just about the high probability and often lower impact risks but it should also wake up to the low probability, high impact (strategic) risks like the present COVID-19 event. Remember, the frequent and less impactful risks can be easily dealt with. Infrequent low probability strategic risks that can have a huge impact (like the occurrence of COVID 19) are the ones that put the world in danger and these need to be anticipated and tackled well in advance.
So, all concerned stakeholders—be it federal, state and local governments, policy makers and corporate leaders worldwide, multi-laterals including medical professionals, pharmaceutical companies and various national intelligence agencies—must factor in this crucial aspect and start continuously scanning for the low probability, high impact strategic risks that can devastate the whole world as part of their normal risk management and decision making process. This will help these organizations and all of us strategise better and prepare well in advance to counter such low probability high impact (strategic) risks.
That said, as a start, what are the likely sources of such events, especially looking through the lens of COVID 19? The clear argument emanating from the present crisis is that, we must start to focus on zoonotic diseases. That is where the future risks lie and that is what governments, policy makers, huge multi-nationals, multi-laterals and all of us need to factor into our risk management processes and consequent decision making.
Why is this so? According to researchers, there are a number of viruses shrouded in, and waiting to come out, from animals around the world.
One visionary researcher, Dennis Carroll
argues that there are about 1.67 million viruses on this planet, of which between 631,000 to 827,000 have the capacity to infect humans. And as Dennis clarifies, the word infect must not be taken as synonymous with the ability to cause illness and/or death, although some of these could lead to illnesses and/or death.
If fact, at various times, researchers have repeatedly warned the world about the threat of zoonotic spillover—i.e., the spread of pathogens from nonhuman mammals to human beings—for long but we have consistently ignored these warnings. And in the present case of COVID-19 (caused by a novel Coronavirus), scientists are confident that the pandemic, which first reared its ugly head in Wuhan, China, originated from a virus inherent in bats. Some researchers however feel that there could have been a secondary source from which the zoonotic spillover occurred—in this case while some have noted that the pangolin could most likely be the secondary source, we need more research to confirm this. So, the clear point being made here is that the world and its key stakeholders must become aware of the global threat of (future) zoonotic diseases. Wait a minute, you must be wondering as to why I am talking about future zoonotic diseases, even as COVID 19 rages.
Let me give you some interesting information here. It is about risk management.
Transferring the same to the above context of viruses and their ability to infect humans through zoonotic transmission and thereafter cause illness and death to humans, we can say that the risk of such an event occurring is perhaps low. This is what I would call a rare risk. Rare as it may be, such low probability risks (which happen once in a while) always carry great impact, often with severe consequences as we are currently experiencing with COVID 19.
Now look at the risk aspect of this. As noted above, there are millions of viruses (about 1.67 million) that can spillover due to zoonotic transmission. Of this, between 631,000 to 827,000 are said to have the capacity to impact humans with infection—and not all these will cause illness and/or death. So, it can be clearly argued that the probability of occurrence of zoonotic transmission of a virus as low and the probability of those zoonotically transmitted viruses causing infection to humans and leading to illness or death is very, very low. And, the probability of the most adaptable virus (like COVID-19) striking humanity and causing widespread illness and death as well as severely impact humanity in an economic sense is extremely, extremely low.
But the point is that oftentimes, the risks with the lowest probability have the greatest impact as we are seeing in what has happened with COVID-19, which I believe is more dangerous than even SARS, because its mortality rate among normal populations is pretty low and is therefore able to jump from one human host to another and proliferate very easily. SARS reportedly had a mortality rate of about 10% and so, it killed a higher percentage of people and halted its own proliferation. Again, the difference with COVID-19 is that it is among the most adaptable and that is why it is catching on like wildfire. Again, more research is needed on this.
That said, what lessons can we draw from the above with regard to short, medium and long-terms strategies needed to combat the low probability but extreme impact risk of zoonotic transmission of highly adaptable viruses like COVID-19?
• First, as newly emerging infectious diseases, by and large, come mostly from wildlife, we need a strong global commitment from all stakeholders for preventing our crossover with wildlife. This calls for the strictest ban on all forms of wild life trafficking. The key is we have great laws the world over but it is the implementation which is extremely poor. This point needs great emphasis.
• Second, we need to support focused and larger investment in research in the wildlife sector. This is investment into the future and this has to come from all key stakeholders as the risk is very real. Without a doubt, our understanding of the diversity and ecology of viral threats is low and that clearly compromises our future ability to mitigate disease emergence. As scientists have said, a large number of viruses are circulating and we don’t know about them until and unless we see a zoonotic spillover event and people getting sick or dying. Put differently, if we have advance information on these viruses, how their zoonotic transfer occurs and how they proliferate thereafter, we would be able to prevent future devastation to a great extent. COVID 19 is a classic example of this.
• Third, we need to understand why there has been increased zoonotic spillover, especially in the last two decades? One of course is the disturbances in the environments of wildlife, which has brought closer to them as we can now claim to be occupying ecosystems that we did not in the past. Another is economic development and the associated business exploration. And when such activity is undertaken and highways and roads are built, it also becomes easy for wildlife to move on their own, or as part of food trade (often through illegal means). Pangolin, the most illegally trafficked mammal on this planet, is a great example of the latter.
• Fourth, we also need to understand if there is a secondary source, often a wildlife animal involved in this zoonotic transmission. That would be crucial. In the case of SARS, it was the civet cat and in the present case, early research suggests the pangolin. This needs confirmation.
• Fifth, we need to study the zoonotic transmission and see if a secondary source is what causes greater impacts, given that transmission from bats to humans is extremely low probability. I am talking of SARS as well as COVID 19. That will help us for the future in terms of understanding the causality of impact.
• Lastly, we also need to know if the zoonotic transmission through the secondary source occurred because of humans eating wild life. And there again, we need to know if the transmission occurred during the preparation of the wildlife as food, because once cooked and prepared, the virus would have been dead and gone anyway. This again can help us tackle zoonotic spillover of future viruses in an efficient and effective manner.
Thus, clearly more research is needed on all of the above if we are to prevent the zoonotic spillover of shady viral matter that could cause great devastation and turmoil as we are witnessing today. And this is what governments, multi-laterals, the private sector and other key stakeholders must focus on so that the future is more secure and healthy for our children and grandchildren. The urgency is all the more because when there is zoonotic spillover of viruses such as COVID-19—which inherently have the profound ability to adapt, mutate, further adapt—the world of tomorrow could be very different than the world of today as such viruses could become even more devastating than COVID-19.
To reiterate, COVID 19 has taught us a very important lesson. Be it governments globally or private or public sector corporations or other forms of organizations, we need to bring in an eclectic risk management framework that fosters thinking among decision makers on the occurrence of low probability high (strategic) risk events that can wipe us out in entirety. While how to do this will largely be dictated by the strategic context and is the subject of a subsequent article, the fact remains that all forms of organizations identified by Alfred Chandler, Herbert Simon and Max Weber will need the mandatory assistance of such a risk management process that focuses on the occurrence of all low probability very high impact (strategic) risks on a continuous basis. Only this can help secure the future for us, our children and grandchildren.
(Ramesh S Arunachalam
is author of 12 critically acclaimed books. His latest release in January 2020 is titled, “Powering India to Double Digit Growth: Five Key Steps To A Robust Economy”
. Apart from being an author, Ramesh provides strategic advice on a wide variety of financial sector/economic development issues. He has worked on over 311 assignments with multi-laterals, governments, private sector, banks, NBFCs, regulators, supervisors, MFIs and other stakeholders in 31 countries globally in five continents and 640 districts of India during the last 31 years.)