The risks of carrying on regardless

Business Risk

The need to identify, measure and mitigate business continuity risks has never been more relevant.

Strategic risks stop businesses achieving their strategic goals – they are the big risks, usually coming from outside the business, that are difficult to anticipate and mitigate for.

Key among them is the risk to business continuity: the ability of the business to continue to deliver its goods or services when the fabric of the business – its people or assets – have been affected by a major external event.

The current coronavirus pandemic is clearly one such major event which has brought into sharp focus the business continuity planning of those businesses which are able to continue to operate during the lockdown period.

Business continuity plans are commonplace in most businesses, and usually involve the technical aspects of running a business, such as making sure that the IT systems and stored data are available and accessible remotely. There are, however, some more fundamental risks to business continuity which are often overlooked until the worst happens.

The biggest risk to any business facing an external threat to its operations is financial – the business simply running out of cash while its operations are disrupted. To mitigate this risk, business need sufficient reserves to weather the storm.

Many businesses (and most charities) in the UK live a hand-to-mouth existence with very low levels of cash reserves – usually no more than would be needed to wind down the company, pay off debts and pay redundancy costs, and in some cases not even that.

When something like a pandemic-triggered lockdown occurs, the immediate plan is for as many employees as possible to work from home. But even large multinational companies have found that this is not as simple as it sounds, with emergency investment required in additional hardware such as laptops and increased bandwidth and server capacity.

The first mitigation for business continuity risk is to ensure that there is a “rainy day” fund in your reserves to cover the additional costs the business will face in order to stay operational.

The second mitigation factor is insurance. Make sure you know exactly what is covered, though – many businesses have discovered that they are not insured for the effects of a global pandemic. It may also take time for insurers to pay out so you will need to go back to your cash reserves or make sure you have sufficient borrowing facilities such as an overdraft in place.

Thirdly, you will need to look at your corporate governance arrangements, particularly your articles of association, to ensure that you are legally able to hold board and shareholder meetings electronically. You may need to hold more frequent, shorter virtual board meetings and they will still need to be accurately minuted to record any decisions taken during the crisis period.

The fourth aspect of managing business continuity risk is communication – make sure your staff, suppliers and most importantly your customers are aware of any new arrangements which may apply, even if it is just to tell them that you are still open for business. The ideal is that any changes which are made to the business as a result of a major external event should appear seamless to the customer or end-user. Where this is not possible, communication is vital to minimise the impact to the business.

The increasing reliance on IT systems, software and digital data has meant that most business continuity plans are the responsibility of the IT department, and will in general have little or no visibility at board level – other than to clarify if there is a business continuity plan in place, and whether it has been tested recently.

In fact, business continuity is highly significant in terms of its impact on the delivery of the business strategy and should be considered in detail by the board on a regular basis.

As will be shown by the current crisis, those businesses which have been able to carry on by finding innovative solutions to the delivery of their goods or services are much more likely to be successful post-lockdown – demonstrating the value of looking seriously at the risks facing the business and, where possible, turning them into opportunities and sources of competitive advantage.

First published in Business Reporter https://business-reporter.foleon.com/business-reporter/risk-management-insurance/the-risks-of-carrying-on-regardless/ 23 April 2020

Published by

David Doughty

Chartered Director, Chief Executive, Chairman, Non-Executive Director, Corporate Governance Expert, Keynote Speaker
Business continuity is highly significant in terms of its impact on the delivery of the business strategy and should be considered in detail by the board on a regular basis. As will be shown by the current crisis, those businesses which have been able to carry on by finding innovative solutions to the delivery of their goods or services are much more likely to be successful post-lockdown – demonstrating the value of looking seriously at the risks facing the business and, where possible, turning them into opportunities and sources of competitive advantage.

Published by David Doughty

Serial entrepreneur, Software sales and marketing specialist, Chartered Director, Chief Executive, Chair, Non-executive roles in private and public sector, Business consultant and mentor.

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