Don’t Gamble On Your Company’s Future
From: FM Global
Hidden risks abound in the current environment. Ask your CFO these five questions to make sure you're prepared.
Although we’ve all suffered enough with the ongoing pandemic, it’s the classic gambler’s fallacy to believe one’s business is “due” for a period of quiet stability.
Rather, the chances of any given business disruption—fire, flood, earthquake, cyber attack, supply chain failure or another pandemic—are just as high as always. And by that, I mean considerable.
So, despite the pandemic’s domination of our attention, it’s critical to keep your company’s focus on the entire array of risks that threaten your company’s long-term value and make the necessary investment to enhance your business resilience.
Let’s dig deeper
Although the chances of unanticipated business disruption are the same as ever, the stakes are higher right now. And the projected cost of any disruption is worse than normal because the pandemic is already testing our resilience. Resources are strained.
The factors that today threaten to turn normal risks into serious threats include pandemic-idled facilities, skeleton staffs, strained supply chains and increased dependence on IT networks for remote work. Consider a cyber attack: Prior to the pandemic, you had critical masses of employees working face to face, both in data centers and around the world. Presumably, they provided a measure of business continuity should anyone encrypt your systems and demand a US$10 million ransom. Now seemingly everyone is remote, and rarely is a knowledge worker working in a face-to-face setting. So, in the event of a cyber attack, regular business—as well as urgent business recovery—may lag considerably.
Similar complicating factors lurk around other perennial threats to business operations. Smaller than normal teams at your offices or manufacturing facility mean that, say, a fire may be discovered later and tackled by fewer employees or emergency responders taking longer to arrive than in normal times. These shortages increase the risk that damage will be more expensive and recovery more time-consuming.
In a fast-moving flood, you might have fewer trained bodies to scramble to protect your company’s assets. Who’s around to move delicate equipment like servers to higher ground, or to install flood gates and deploy inflatable dams? The same magnified risk applies to your suppliers and distributors, meaning small supply chain problems can quickly spiral into big ones.
Are you in a high-hazard industry? Imagine that a critical production machine fails—say a generator at a power plant—and an essential replacement part takes a week, or more, to arrive instead of a day.
To say nothing about climate risk. For many companies, the potentially adverse financial impact of a changing climate is off the radar screen … even as headlines blame the climate for devouring 5 million acres in three U.S. states. More than 3 in 4 (77%) CEOs and CFOs of the largest companies in the world admit their firms are not fully prepared for the adverse financial impact of a changing climate.
Prioritize resilience
It’s important to remember that business disruptions—even when aggressively insured—often cause permanent losses in company value by reducing market share, investor confidence and growth. Thus, it’s always better for your business to prevent a loss from occurring in the first place.
The good news is you can improve your position with respect to these business risks. How to get back on track? I suggest posing five questions to your CFO:
1. Have we investigated all foreseeable risks to understand, quantify, prioritize and mitigate them?
2. Is our investment in resilience at the proper level given the potential losses at stake?
3. Have we conducted a business risk analysis, which methodically analyzes all of a global company’s properties, each one’s contribution to profit, the risks each location faces, the cost of mitigating them, and the smartest order in which to tackle them?
4. Have we done a supply chain risk analysis as well?
5. Finally, are we accounting for country-specific risks based on traits related to the economy, hazards (natural and manmade) and the supply chain?
There’s only one right answer to each question. Tackle these, and your resilience will better offset your real risk. And even though you shouldn’t roll the dice when facing complex risks, the odds will be back in your favor.
As originally published in Chief Executive.
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