In the current climate of accelerating change and uncertainty, strategic foresight is indispensable for Risk Managers. The past few months have underlined the speed at which situations can escalate and risks emerge and evolve. Yet, despite the increasing dynamism and complexity of global challenges, decision-makers often fall prey to short-term thinking and cognitive biases that hinder their ability to anticipate and mitigate emerging risks. This can lead to strategic blindsight. At a time when there is a widespread sense of existential threats on the horizon, this sense of foreboding often can – ironically – exacerbate a human tendency to be reluctant to think too far into the future and instead to focus on the short-to-medium term.
It is vital, however, that Risk Managers are equipped with tools to help them look further into the future, to help their organisations to be better prepared to address risks – however rapidly they change and unexpected they might previously have appeared.
Here we explore the systemic barriers that prevent effective long-term risk management, highlighting the role of cognitive biases and structural constraints in shaping an approach that is too often reactive rather than proactive.
The pitfalls of short-termism in risk management
Short-termism—the tendency to prioritise immediate gains or agendas over long-term resilience—is deeply embedded in corporate and governmental decision-making. This is particularly problematic in risk management, where emerging threats often develop over extended time horizons. These threats are sometimes referred to as ‘Grey Rhinos’; hazards of high probability and high impact but which are not addressed until the risk is actually upon us. The focus on quarterly financial results, election cycles and immediate operational concerns leaves organisations ill-prepared for disruptive events and slower-moving systemic risks such as climate change, demographic shifts and technological disruption. It is a particularly unfortunate tendency given that the nature of emerging risks and trends actually often leaves ample room to identify, monitor and mitigate these threats. This short-term focus is usually driven and exacerbated by:
- Market pressures
Investors and shareholders often prioritise short-term returns, discouraging investments in long-term resilience. - Regulatory and political constraints
Policies and regulations frequently operate within short electoral cycles, limiting the ability to enact long-term risk mitigation strategies. - Operational priorities
Organisations often focus on crisis response rather than scenario planning, leaving them vulnerable to unforeseen disruptions. We spend our time on the ‘what now?’ rather than the ‘what if?’ conversations.
Cognitive biases that cloud decision-making
In addition to the market and governance forces that erode long-term thinking, cognitive biases play a significant role in reinforcing the focus on the short-term. Research in behavioural economics and strategic foresight has identified several key biases that impede effective risk planning:
- Status quo bias
Decision-makers tend to resist change, preferring familiar solutions over novel but necessary adaptations. This can lead to inaction in the face of emerging risks. - Confirmation bias
Organisations often seek information that supports their existing views, ignoring evidence that contradicts their preferred strategies. - Optimism bias
Many leaders overestimate their ability to manage risks, underestimating the probability of disruptive events. Sometimes, we even acknowledge the risk but somehow think we will be exempt from its effects. - Availability heuristic
Decision-makers give disproportionate weight to risks they have recently encountered or that are widely publicised, while neglecting less visible but potentially more significant threats. This is especially true for emerging risks, which by their nature are less visible early on, but can easily be identified, if ones focus and risk governance allows it. - Persistence of discredited beliefs
Even when presented with evidence that contradicts existing assumptions, organisations and policymakers may continue adhering to outdated strategies, leading to a failure to adapt. - Group think
Often a group prioritises consensus and harmony over critical evaluation and diverse perspectives. Dissenting opinions are often suppressed, leading to decision-making that lacks rigorous scrutiny and fails to consider alternatives. This phenomenon, often referred to as “herd mentality’ or ‘following the bandwagon’, can result in a collective lack of focus on emerging risks and over-confidence in the agreed plan.
The consequences of failing to address biases
The failure to recognise and mitigate these biases has real-world consequences.
Recent events, such as the global shortage of semiconductors stemming from the concentration of producers, or the energy supply constraints in mainland Europe caused by geopolitical turmoil, highlight the dangers of underestimating emerging risks. In many cases, these crises are not unforeseen.
Warning signals are often visible but overlooked or dismissed due to cognitive biases and short-term incentives or priorities.
The systemic risk context
In today’s interconnected, dynamic and uncertain environment, organisations need to consider threats and opportunities in the context of systemic risk. Systemic risk, whereby a crisis causes the breakdown of an entire system not just one of its constituent parts, can result in a severe global economic downturn.
The current geopolitical climate could give rise to unprecedented systemic economic risks as the world shifts toward a multipolar landscape defined by technological, climatic and territorial rivalries. These threats, rooted in the interdependence of financial, commercial, and energy systems, cannot be mitigated through diversification because they will simultaneously impact all economic actors on a global scale. Their unpredictability and magnitude will exceed traditional adaptation capacities, exposing economies to shocks of universal scope.
Systemic risks could take the form of, among other things; a cyber war that could cripple financial markets within hours; a water conflict that could trigger a global food crisis; technological blockades that could paralyse worldwide trade; or a conflict over resources that could trigger disruption to energy supplies just as the world is grappling with the strain of the energy transition.
A foresight approach could help Risk Managers to understand and prepare for the effects of systemic risk on their organisations and the markets in which they operate.
