Managing Risk in a Crisis – Pandemic and Global Shutdown.
Business Update: June 2020
June 20, 2020
Reserve Bank of Australia’s Response to COVID-19 helps SME’s
July 7, 2020
This article has been prepared by Jeff Cooper, Principal of R&O Consulting Pty Ltd, Melbourne.
Events in the world over the last 30 years or so have had some commonalities that differentiate them from the COVID-19 event that we are facing now. They were typically man-made, or as is often quoted, Mother Nature at work. Examples are bushfires, civil war, earthquake, tsunami and even the outbreak of some diseases in poorer, less developed countries. So what do they have in common? They are localised or regional in nature. Christchurch in New Zealand is a poignant example where there are still buildings that cannot be accessed, and the expected business interruption period of up to 24 months has been well and truly exceeded.
The longer an economy is impacted by such events, the more the people living in that economy and the local businesses suffer, which naturally leads to long lasting impacts.
The risk of an outbreak of a disease that has global implications has wide reaching impacts and needs to be considered more fully by business. This is particularly given the globalisation of industry and commerce, and the reliance or dependency on external sources of supply, including transport.
The question is should our approach change? Maybe the risk of a pandemic should have been assessed already considering we have had Avian flu (H5N1), Sars (SARS-CoV) and Ebola in recent years. Perhaps the likelihood rating has kept it off the key risk radar for organisations. Time to reassess?
It is recommended that businesses go back to basics when first the event occurs, in this case when the pandemic was announced, and all Government plans triggered.
The sudden closure of the global economy is certainly unprecedented and immediately impactive whether a business manufactures, distributes or provide services across industry.
There are then three stages:
Reaction – We have witnessed this, business closures, airlines shutting down, borders being closed and during this period, it is all about what we would typically call disaster recovery. It is fair to say that most of us were in a daze for the first few weeks. Supply chain management is certainly critical.
Overcoming – The next stage is assessing how we get through this as a business. We have seen several ways this has been approached, many with Government assistance, JobSeeker, JobKeeper for instance.
Continuity – The question here is, after the pandemic is over and borders are slowly reopened what will the business look like. To key point being the business must first survive .
Some of the impacts can be reduced or mitigated by reviewing business risks and examining all interdependencies. SMEs in particular, should scrutinise contractual aspects of leases, supply agreements and so on, to try to insulate the business from some of the consequences of the pandemic.
Manufacturing and supply chain is nowadays typically on a “just-in-time” basis. That creates risks during long term shutdowns as we have seen with supermarkets and the “great loo paper shortage”. Businesses need to balance the cost of stockpiling for such an event, versus the business continuity risk of not doing so.
Re-examining the timeframes that you have built in for a business interruption and to test the business resilience for such an event, no matter the cause, is of critical importance.
Risk management is part of business DNA, so it shouldn’t require too much external assistance. It is recommended that you review your risk management framework thoroughly, and reassess the key risks facing your business now as we embark upon the “new” normal.
For every risk encountered there are opportunities, now is the time to embrace these opportunities.
Jeff Cooper, Principal of R&O Consulting Pty Ltd, Melbourne.
