Risk Management: Lessons from the Coronavirus Crisis
Each new, unforeseen black swan event highlights valuable lessons for businesses and risk managers about how to respond. The coronavirus (COVID-19) outbreak is no exception. Based on what is known so far about the disease, we can already draw some general conclusions about how such events should be addressed in the future.
When it comes to threats like COVID-19, businesses stand a better chance of surviving and recovering when management is prepared to address it head-on. This applies not only to businesses with operations in challenging locations but to businesses anywhere in the world. Because of the COVID-19 outbreak, travel and business operations throughout the world are already being significantly impacted, even in countries that have not yet recorded any official cases of the virus. To be prepared for such an eventuality, businesses should consider implementing the following general practices:
Establish specific protocols that should be followed when local, national or global health emergencies occur, including what sick employees should and should not do when infected. (This may even apply when someone has a cold, to avoid making other employees sick.)
Assign specific individuals in advance to address the inevitable issues related to an outbreak and empower them to act, consistent with the above-referenced protocols.
Establish in advance a relationship with local, national or global organizations and get on their mailing lists, so you can receive and create a current and reliable flow of information.
Do not penalize employees for bringing health-related issues to management’s attention. Set the example of transparent information flow from the top of the organization as a routine matter of fact.
A critical part of any risk manager’s job is to anticipate the unforeseen and plan in advance for how to address it effectively. When unforeseen events occur, senior management will inevitably turn to risk managers. Coming to the table prepared with answers in advance requires foresight, planning and time. While no risk manager can possibly foresee a viral outbreak, past outbreaks like SARS in 2002-2003 can teach us lessons for what should be done to manage such risks. (Although it should be noted that COVID-19 already has had a more significant economic and public health impact in two months than SARS did after more than a year). Some of the steps risk managers should take include:
Obtain requisite forms of business interruption and related coverages and ensuring that they are current and adequate to account for up to medium-term interruptions.
Establish corporate procedures or relocating employees and replicating their workflow at another location.
Identify alternative sources of supply in advance that may be implemented on short notice.
Create a standby budget for such emergencies that can be utilized at a moment’s notice.
No amount of advanced planning can possibly account for every contingency that may occur in a world filled with unknown unknowns, but it makes little sense to presume that black swan events will not impact your business. Too many business practitioners pay too little time accounting for the unforeseen, as they are simply too busy either putting out fires or prioritizing near-term needs. That approach will only take businesses so far. Those that will survive, and perhaps even thrive, in the current environment will have taken many precautions. Given the growing and ongoing clash between man-made and natural risks, it is probably only a question of time until a black swan comes knocking on your door. Use COVID-19 as the impetus to create or enhance the risk preparedness of your organization.
Article originally published in Risk Management Magazine.
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