Business Interruption, Supply Chain Among Top Business Risks for 2014: Allianz

You don’t have to read the entire story on Business Interruption here http://www.claimsjournal.com/news/national/2014/01/14/242858.htm I cut out a few things that interest me and I hope they interest you as well!

Here are my high points:

“Companies are increasingly concerned about the interconnectivity between different risks and their business continuity plans need to account for an escalating variety of risk scenarios, including the sometimes hidden incidental effects,” said Hugh Burgess, CEO of AGCS North America. For example, he cited Superstorm Sandy in 2012, which resulted in wind damage, power outages, and IT-system failures that in turn led to substantial business interruptions.

In the U.S., natural catastrophes ranked second as a business risk in 2014 at 58 percent followed by fire at 24 percent. Loss of reputation or brand value ranks as one of the top ten risks for the first time in 2014 as the fourth most frequently cited business risk for U.S. companies. Rounding out the top five risks in the U.S. is cyber crime, which also includes IT failures and espionage. Download a full list of the Top 10 risks in the US.

I’ll tell a story that opened my eyes many, many years ago as to why what Paratus does is such an important yet most overlooked part of Business Continuity and Business Interruption mitigation.

A large Federated Store that was one of 4 anchor stores at a mall had a transformer blow on an early Thursday morning (pre store opening) which powered a good portion of the store plus the HVAC. The store was having a 3 day sale starting on Friday. The store thought, “hey that’s the power company’s problem call them” which they did. The power company came out and said, “the agreement with the mall owners is that we stop at the high voltage side, the transformer belongs to the mall” so Federated gets the mall involved who says, “your lease says that the transformer belongs to you the tenant” – this is where we came in.

Federated reaches out to us, we get over there assess what they need to replace the downed transformer with a generator for now and get the entire store running. This process takes until the following morning but the store is up and running completely but the cost incurred to work all night, put people in motion from around the area and so on to get this done was big money. Had there been a Business Continuity Plan in place that outlines this, the cost would have been less true but more importantly MUCH less stress, more organized and less time to get back on-line and running.

So far this all sounds good, a little chaotic but not bad, what was my lesson and what did I learn about Business Interruption?

I said the Head of Facilities, “what’s the big deal close the store for a day or two and get a new transformer installed, the cost of this emergency is going to be more than the daily profits of the store, it’s crazy!” This is when i became schooled with his responses, “That’s not where the BIG loss is, we have a 3 day sale starting on Friday, flyers have been printed months ago and have been inserted into newspapers (no internet then) that people have already read, radio, TV ads and we can’t tell people We Are Closed. We have had extra inventory brought in for the Sale BUT most important is – people are coming to this store looking to buy these items and if we were closed they still want to buy that item it is in their mind that they are going to spend that money today for that item. They will most likely go to one of the other 3 anchor stores and spend that money, they now have a bad taste for our store, they came here, it was closed and they spent more money for the same item not on sale at our competitors and that is our fault. It may take many more more trips to this mall before they forget that and come back to our store, the more costly damage is the damage to our BRAND!”

That opened my eyes to Business Interruption as this story points out Loss of reputation or brand value ranks as one of the top ten risks for the first time in 2014 as the fourth most frequently cited business risk for U.S. companies. The funny part is old problems, ideas and fashion just seem to be recycled over and over because almost 30 years ago this was important to some companies!

Thanks for reading!

 

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