Political risk assessment that stops at predicting outcomes is not risk assessment — it is forecasting. Risk assessment asks what the organisation will do when the forecast is wrong.
Beyond Forecasting
The standard political risk assessment — the evaluation of the probability of specific political outcomes in a specific environment and their implications for the organisation's activities in that environment — is necessary but insufficient for effective political risk management. It is insufficient because its value depends on the accuracy of the forecast, and political forecasts are systematically uncertain in ways that standard risk models do not adequately capture: the black swan political event that was assigned a low probability but occurred is not a forecast failure to be regretted; it is the condition that the risk management framework was supposed to prepare the organisation for.
Effective political risk management goes beyond predicting outcomes to designing the organisational capabilities that allow effective response across the range of outcomes the political environment could produce. The organisation with the financial reserves that allow it to absorb the short-term impact of an adverse political event. The operational structure that can be reconfigured quickly in response to a change in the political environment. The relationships that provide early warning of emerging political developments and maintain access to key decision-makers across political transitions. These capabilities are the risk management content that the probability assessment alone does not provide.
The Robustness Standard
The robustness standard for political risk management asks not whether the organisation can thrive in the expected political environment but whether it can survive in the worst plausible political environment and recover when conditions improve. This standard is more demanding than optimising for expected value, but it is the appropriate standard for organisations operating in environments where the political downside scenarios are severe and the organisation's presence in the environment is long-term.
Political risk assessment that produces a probability is a forecast. Political risk management that produces a plan is risk management. The organisation that has the forecast but not the plan has done the easier half of the work and left the harder half undone.
Discussion