Emerging Risk: An Integrated Framework for Managing Extreme Events

Today?s complex, interconnected global environment has created borderless risk that is capable of rapidly spreading across geographic, societal and organizational boundaries. In this environment, extreme events compel greater attention due to their potential for generating expansive and catastrophic harm. One source of extreme events is emerging risk which, as defined in this paper, is new (novel) risk that has not existed previously. Akin to the Black Swan as proposed by Nassim Taleb, emerging risk falls outside our customary cognitive and decision making frameworks. This paper begins by exploring cognitive and behavioral theories which can be applied to explain why emerging risk is often overlooked, downplayed or ignored. The existing literature is also examined to identify approaches (including systems theory, scenario planning and anticipatory management) for enhancing our capacity to understand, identify and handle emerging risk. Finally, this paper proposes an innovative framework for managing emerging risk within an overall enterprise risk management (ERM) program. The suggested framework provides a practical approach for meeting the challenges of emerging risk, including the need for alternatives to traditional quantitative and predictive tools.