Learn about the importance of Business Risk Management and how it can help prepare your business for emergencies, like the ongoing COVID-19 pandemic.
The continuing surge of COVID-19 cases has everyone scrambling to comply with the constantly evolving Enhanced Community Quarantine (ECQ) and General Community Quarantine (GCQ) requirements imposed by the authorities. Thus, to survive, business owners and their companies need to adapt and change their ways of doing business.
One of the best business practices that a company could adopt at this time of pandemic is Business Risk Management. This can help the company anticipate potential problems that can severely affect the company or put the company out of business, which in this case, include the ongoing COVID-19 pandemic.
Business Risk Management and Black Swan Events
So what is Business Risk Management? In layman’s terms, it’s all about identifying business challenges (i.e. the “risks”) and coming up with solutions to mitigate or resolve the risks. The classic risk management steps involve:
- Identifying the Risks
- Assessing the Risks: ranking the identified risks using a rating system (e.g. high, medium, low or critical, important, and acceptable)
- Treating the Critical and Important Risks: using a strategy or action plans to mitigate, reduce, transfer, or accept the risks.
What are Black Swan Events?
As a risk management practitioner, I believe that the COVID-19 pandemic that we are currently experiencing is a Black Swan—an event that we are sorely unprepared for. In business risk management language, a black swan is an unpredictable and improbable event that potentially can result in severe consequences.
The term Black Swan originated from the Western belief that there are only white swans, but that changed when rare black swans were discovered in Australia. The term was popularized by Nassim Taleb, a finance professor who wrote about it. Thus, Black Swan events are characterized by their rarity and their severe impact. Examples of past Black Swan events include the dissolution of the Soviet Union, the 2008 financial crisis that crippled the world’s financial markets, the September 11 terrorist attack (911) that shocked the United States, and arguably, the sinking of the unsinkable Titanic.
There are many more such events but it should be noted, however, that a Black Swan event is also characterized as supposedly being very obvious in hindsight —that is, if we paid enough attention to the obvious risk signals preceding the events.
What Business Risks Should You Prepare For
The COVID-19 contagion that continues to spread throughout our country (and the whole world) has caught many companies unprepared. We can still, however, anticipate and assess the Black Swan Risks we are facing. This is especially important since the more significant risks have a high probability of occurrence and serious, negative consequences.
Among others, (in my opinion), the following are the top three significant risks faced by local Philippine companies during this pandemic times:
- Cluster Infection Risk: includes widespread infection of many company employees resulting in an operational shutdown of the business.
- Business Closure Risk: includes the potential closure of the business because of insufficient business revenues due to a number of reasons brought about by the pandemic (e.g. customers are unable to go to the stores, company products are not prioritized because of other urgent needs by customers, etc.).
- Pandemonium Risk: includes unrestrained disorder, uproar, and chaos by people severely affected by the COVID-19 pandemic (i.e., financially or due to lack of access to food and basic necessities), which could result in widespread looting, stealing, and other similar unfortunate events.
Cluster Infection Risk
In my opinion, the first risk—Cluster Infection Risk—can be easily mitigated because companies can do a lot of things to avoid it. Among others, the following action plans can be implemented or put in place:
- Company policies to prevent the spread of COVID-19 in the workplace: direct steps to prevent the risk of infections. These include work from home arrangements, frequent washing of hands, social distancing, no touching of the face, installation of alcohol disinfection stations, avoiding large gatherings or meetings, regular schedule for disinfecting the company premises, equipment, furniture, and communal items; doorknobs, toilets, bathroom, and the like.
- Strict COVID-19 detection and quarantine protocols in the workplace: random COVID-19 testing of employees and visitors using government-approved testing kits, installation of temperature scanning devices, adopting strict quarantine policies, such as requiring employees to report if they or any of their family members are sick or infected, and requiring affected employees to quarantine for at least 14 days.
- Strict Return to Work policies for employees who were exposed to COVID-19 and/or who were infected: requiring PCR or antigen testing of employees who have recovered from COVID-19 or who were identified as Patients Under Investigation (PUIs) before they are allowed to return to work. Those who tested positive should be required to quarantine for another 7 days and retested until cleared.
Business Closure Risk
The next risk, which is the Business Closure Risk, is particularly challenging to address. However, the following suggestions can be considered to mitigate it:
- Companies should find a way to tweak their business models to adapt to the changing times: for example, an indoor restaurant can change to a food delivery business or outside dining destination. Brick and mortar businesses with store-fronts may have to migrate online. Companies may have to employ “influencers” instead of sales personnel to promote their brand. On the other hand, fashion clothing and accessories businesses can make fashionable PPEs, face masks or shields. However, the key is to ensure that the new business model that you are adopting is closely related to your current business in order to be successful.
- Companies can also consider a temporary shutdown of their operations to allow the company to conserve its available resources and weather through the pandemic: this option requires business owners to be honest and transparent to their employees regarding the potentially dire situation faced by the company. Before embarking on this route, a Cost-Benefit Analysis study should be made by the management to determine the pros and cons of a shutdown. Additionally, a shutdown will also cost the company in terms of separation pay to employees, loans and advances, or company dole-outs to assist displaced workers. The costs of re-opening or re-starting operations should also be included when assessing if a temporary shutdown is the best option versus continuing to operate on a skeletal workforce during the pandemic.
Finally, we need to carefully look into the last risk: the Pandemonium Risk. This risk is critical because it will not only affect individual companies but the whole country as well. Hopefully, appropriate action plans can be put in place in advance and as soon as possible, too, in anticipation of this risk. The nature of a Pandemonium Risk requires that the government and the business community partner join forces to combat this risk.
To prevent it from becoming a reality, the following are potential mitigation measures that should be looked into:
- The government should immediately prepare and/or enforce plans (if there are plans already in place) to ensure the following: the availability as well as the affordability of food and basic necessities (through price control and opening of food facilities), proper handling of medical emergencies (other than COVID-19 patients), provision of food to the less fortunate in our society, and providing regular, up-to-date communication on relevant information to the public.
- The business community and people who can afford should share and donate food and basic necessities to poor communities to tide them over during the pandemic: to avoid untoward incidents, businesses should also heighten security in their premises. Groceries, food facilities, banks, government facilities, and financial institutions should be on guard. Failure to address this Pandemonium Risk will surely result in disorder and chaos that will bring down our country to its knees. I pray that we do not come to such a point.
Arguably, there are many other challenges that companies will face during this pandemic. However, I believe that the three risks mentioned above are the most critical of all. Given this, companies should immediately adopt the necessary action plans to address these risks or we may all have to suffer the grim consequences.
Let’s do ourselves a favor and implement risk management in our companies. Keep safe, everyone.
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