Protecting Your Entity From Business Interruptions

The cost and time to repair a building, restocking of inventory and to find a new location is tremendous. Bills keep piling up and revenue stagnates when an entity is unable to function. This disparity in financial flow can occasionally even compel an entity to permanently close. Business interruption can be categorised as an operational risk since it has an impact on the entity’s ability to operate, and it is of upmost importance for organisations of all sizes to find ways to prepare themselves in mitigating these negative effects.
 

Business interruptions risks

When it comes to business disruptions, many people assume that only extreme situations, such as floods or earthquakes may put their organisations at risk. But recent surveys have highlighted that only 12% of the disruptions are due to natural hazards or extreme weather events. This means that it is crucial for entities to have a proper understanding of the threats which are more likely to have an impact on their business operations so as to have an effective risk mitigation process.

The below points are examples of several major risks that may lead to a business interruption and loss of income for entities:

• Structure fires,
• Extreme weather events,
• Natural disasters, 
• Loss of electricity or running water,
• Failure in IT equipment or infrastructure,
• Third-party disruptions,
• Crime or vandalism,
• Pandemic, or
• Loss of key personnel.

Almost every business faces some exposure to the above risks. It is the responsibility of risk managers to assess the severity of these threats to their entities and to step up with preventive measures protecting their business. Once these threats have been identified, the best mitigating strategy can then be set up with senior management. Such strategies are prioritized in terms of the financial impact these threats may have on the organisation.

Internal & external factors may cause operational disruptions

Exposures can be environmental, human or technical in nature. While evaluating the business risks, it is important to also evaluate whether each exposed risk is preventable. A thorough concept of the entity’s direct exposures will provide a better understanding of all the key elements involved, such as the assets that are at risk, the ultimate impact of the risk as well as the organisation’s vulnerability to those risks. All the exposures should be well evaluated to identify the occurrence and severity of the impact to the organization.

An estimation of the business most susceptible risks will allow for calculations of each risk’s impact. For this process, key aspects, such as expenses, cost of regulatory fines and penalties, business disruption, and loss of revenue should be taken into consideration, to have an accurate forecast on cost containment.

Furthermore, it is also important for the business to have a crisis communication plan in place, ensuring that it offers the employees and other stakeholders updates on critical information. Management must ensure to use a structured but flexible communication network, by utilising multiple tools for communication to pass along information efficiently. Lastly, an emergency plan should be also prepared in case of materialisation of critical events. Organisations should make sure they are prepared for low probability high impact events and have a disaster strategy plan in place which is set up and tested before a risk potentially impacts the organization. Critical components of the emergency plan include ICT and data recovery, constant review of contracts, and the evaluation and generation of inventory of key resources that are essential for business continuity. Lastly, regular testing exercises should be carried out in the form of table-top exercises and penetration tests aimed to verify the plan’s efficiency and effectiveness.

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