Risk cascades

The financial crisis provided a valuable reminder that risks gone bad in one part of the economy can set off chain reactions in areas that may seem completely unrelated. Organizations that thought they had a handle on risk management are no longer certain of their ability to anticipate the effects, both positive and negative, of events that occur throughout the business cycle.
There’s no easy formula for anticipating the path of risk as it cascades through a company or an economy. But we’ve found that executives who systematically examine the way risks propagate across their value chain—including competitors, suppliers, distribution channels, and customers—can foresee and prepare for indirect threats more successfully.
In this podcast recorded in October 2009, McKinsey Director Eric Lamarre discusses ways indirect risks can unexpectedly impact a company across the value chain. A related article, Risk: Seeing Around the Corners, can be found at www.mckinsey.com.