Following the far-reaching address of 15 March 2020 by South African President Cyril Ramaphosa, the reality of dealing with COVID-19 has finally hit home to South Africans. With the country going into a shutdown as travel bans are imposed, schools closed and large gatherings prohibited, businesses across industry sectors face significant disruption.
Steyn McDowall, executive director of business and specialist insurance at Indwe Risk Services, says the past week has shown a glimpse of things to come, as the impact of the virus on global financial markets has been significant. In part, this can be attributed to supply chain interruption due to cities and even some countries going into a total state of lock down.
“Going back to the basics of risk management, the question is to what extent has the identification, evaluation, and controls around the impact of a global pandemic taken place over the past decade? Even though certain organisations have done the exercise and developed appropriate business continuity plans, there is still a gap in the actual transfer of the identified risks, for example business interruption in the event of no material damage,” says McDowall.
This should not come as a surprise either. In 2009, a survey found 19% of respondents cited pandemics as a growing concern to global supply chains, while physical damage at a supplier’s facility and data security decreased by 10% (to 43%) and 14% (to 29%) respectively from 2008.
“The reality is that companies must develop robust strategies to prosper in these uncertain times while they are part of an interdependent global community. Businesses’ decision-making structures, governance and strategy must adjust to meet corporate objectives developed around risk and having an enterprise risk management philosophy as the foundation,” says McDowall.
Business continuity therefore reflects the strategic and tactical capabilities of a company to plan for and respond to incidents and business interruption to continue operations at an acceptable pre-defined level. Becoming pro-active around risk management strategies is no longer a luxury but an organisational necessity.
Even before the COVID-19 pandemic, the majority of risk management professionals felt that business leaders do not understand how advanced threats can impact the company. At the time of the research in 2018, a breach was cited to have a broader range of potential impact than many might realise. Fast forward to the present, and it has become a reality.
It remains critical for managers to balance organisational needs with budget realities and not overlook the potential consequences of their actions or be solely driven by the costs involved. By using the formula R = V x T x C (Risk equals Vulnerability x Threat x Consequences) one comes to the realisation that threats and consequences are real and facility managers have very little control over them.
“The one aspect they do control, is the issue of vulnerabilities. These may be in the areas of safety and security, and identifying where these can be improved on. In my experience, when it comes to risk transfer, insurance markets are now very interested in assisting clients with a robust risk management programme,” says McDowall.
Irrespective of the scenario, a business continuity process or plan is activated when an event occurs that has the potential to interrupt standard operations. The difference is that the COVID-19 virus has made this a reality for every organisation irrespective of size or industry sector.
“This event will cause a significant disruption to, or loss of, vital business processes. The latter may then have a severe impact on the ability of the company to deliver and be profitable. It comes down to the question of what if the controls that have been put in place by the organisation fail and how can it recover?” says McDowall.
“This leads to the activation of a well thought out plan based on scenario testing, as to the expected result due to an unforeseen event. While black swan events are thankfully few and far between, the business continuity plan allows a worst-case scenario modelling. This should ensure that all impacts arising from an event are considered, regardless of the likelihood of an occurrence. And whether or not enough South African companies have monitored developments around COVID-19 prior to President Ramaphosa’s announcement, will only be seen during the next few days and weeks ahead,” concludes McDowall.