The Risk Cascade – 2

Not all second- and third-order risk impacts are downside.  Actively taking risk to create value (value being anything positive such as enhanced reputation, or financial or environmental benefits, or increased market share or customer satisfaction) can have second- and third-order benefits that may not always be recognised at the outset.

The last wolf in Yellowstone was killed in 1926.  The result of that was a boom in the population of elk.  Once their predator had disappeared, the elk could lazily graze the young willow and aspen that beavers needed to build dams.  So the beaver all but disappeared.  And with the shelter of trees gone, songbirds also disappeared and the rivers got too warm for cold-water fish.

In 1995, wolves were reintroduced albeit against much protest from ranchers and their lobbyists.  The reintroduction kept elk herds on the move, causing them to split into smaller herds that hid in the forest when wolves were near.  With less intensive grazing, the aspen and willow recovered, the beaver returned and created dams which led to water being stored.

The water provided shelter for more fish and the trees gave shelter to increased populations of birds.  
Not only that but with the restored ecosystem, foxes, badgers, wolverines, lynx, eagles and even beetles returned to Yellowstone after a 70-year absence.  And there are probably myriad other effects just waiting to be discovered.  While the restoration of wolves cost around $30m, it has also resulted in a financial benefit of around $35m a year from wolf eco-tourism: an economic boom for the surrounding communities.

The cascade effect from taking an upside risk just needed a trigger to produce positive impacts that continue to materialise. Recognising such cascades and managing them well can multiply the value created.

Data Sources: The Guardian newspaper, Google

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