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Natural disasters show up "flaws" in corporate risk management

08 March 2011 Aon

 On 21 February 2011 an earthquake measuring 6.3 on the Richter scale tore through Christchurch, New Zealand. The second quake in six months claimed 148 lives and left the city with an estimated US$15 billion repair bill. Businesses have suffered too. The earthquake is the latest in a series of high-impact natural disasters playing out around the globe since the New Year. Citizens and companies have already faced massive flooding and disruption in Australia, Sri Lanka, South Africa and Brazil this year. Such events create a litany of risk exposures which businesses fail to anticipate and plan for.

The recent floods and earthquake offer insight into our worst-case risk management scenario planning,” says Steyn McDowall, Global Risk Consulting executive at Aon South Africa. “Aside from damage to company assets and infrastructure, a business trading in the affected area would incur losses to profits and continuity. In the worst case key personnel can be injured or killed.”

He says that companies that fail to plan for high impact events run the risk of having to rely on government assistance, or close their doors for good.

McDowall believes this year’s natural disasters once again highlight the need for comprehensive risk planning. “An Enterprise Risk Management plan helps companies to balance their operational and risk strategies, thus ensuring business continuity and profitability post disaster. Thorough planning can mitigate the risk to businesses and assist in a speedy economic recovery from a seemingly “total” loss event.”

He says careful scenario planning will assist businesses in creating a Business Continuity Management (BCM) process to put in place strategies, plans and actions to ensure continued operation in the event of a natural or other disaster.

“Imagine arriving at work to find your head office reduced to rubble,” says McDowall. “You have to recover your critical processes such as information technology, customer support and production facilities as quickly as possible. A company with offices in the central business district in Christchurch, for example, would have to move every one of its business processes to an unaffected backup location.”

According to McDowell, by paying close attention to their risk profiles, companies can successfully negotiate the worst natural or man-made disasters. “Disasters of this magnitude require a “war room” approach a Crisis Management Operation Centre, from which companies can implement the various stages of their respective incident management plans.

“Every company – big or small – should consider the impact of total loss on their business. They should be asking – what happens if a quake hits my head office? What happens if a fire lays waste to my factory – or a mudslide knocks out my warehouse? Businesses should plan to get their operations up and running, honour major contracts and cover possible fines and penalties for late delivery in the event disaster strikes.”

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