How does a file transfer software go from relatively unknown to the largest breach of 2023, affecting over 2,600 organizations and government entities (and counting), exposing the data of 77.2 million individuals, and triggering class-action lawsuits against companies that didn’t use the product? The same way an outage at one of the major pharmacy claims processors in the US impacts the cash flow of 800+ hospitals, costs some providers as much as $100 million per day, and brings turmoil to healthcare operations nationwide. This is a symptom of the systemic risk of the interconnectedness of global business systems, aka globalization.
The Butterfly Effect For Businesses
In today’s hyperconnected world, businesses across the globe are more intertwined than ever before. From multinational corporations to small suppliers, when one system faces a risk event, it can create a cascading effect of chaos amongst the rest. The resulting ripple effect on companies, geographies, and sectors is too prominent to ignore. Hence, the interconnectedness of global systems makes its debut as the seventh most potentially impactful systemic risk in our new report, The Top Systemic Risks, 2024.
Think of this systemic risk as the butterfly effect for business — that is, the idea that the world is so deeply interconnected that a small, seemingly trivial event or decision may have profound and far-reaching consequences. The examples above are just two of the many daily headlines of seemingly discrete risk events that trigger outsized business impact. It’s this impact that shows that this systemic risk will only increase in relevance and prioritization among risk professionals and enterprise risk management programs.
Systemic Risk Events Are Outside Your Control — How You Respond Is All On You
What is systemic risk? It’s external forces outside an organization’s control that materialize into catastrophic and often cascading failures or disasters. They get their power for destruction by their downstream dependencies and interconnectedness with enterprise risks. It’s common for multiple systemic risk events to collide and compound the devastation and disruption to businesses and customers.
Sadly, prioritization of systemic risk is often overlooked and vastly underestimated, with many citing it as too vague, unlikely, and existential to prepare for despite being negatively affected by these low-probability/high-impact events in the past. By failing to prepare, organizations struggle with resilience and consequently experience these events more severely.
Understanding Dependencies And Context Is Key
Not all risks are weighted the same for each organization. What’s considered a critical risk for one organization may be considered low-risk for the next.
For all you risk pros, read The Top Systemic Risks, 2024 to identify the 11 systemic risks for 2024 (such as climate change, geopolitical risk, and speed of innovation), start to gauge their effects on your organization, and learn strategies for how to mitigate them. Go one step further and use the Systemic Risk Matrix tool to prioritize systemic risks, evaluate the degree to which they impact enterprise risks, visualize connections and dependencies, and prioritize risk mitigation on high-impact risk areas specific to your business.
