Business resilience determines to a great extent whether a business can continue or not. The risk of failure to forecast and build business resilience to weather out a disaster is the most significant risk that could affect the continued existence of an organization.
What is Business Continuity?
Business continuity (BC) is defined as the capability of the organization to continue delivery of products or services at acceptable predefined levels following a disruptive incident. (Source: ISO 22301:2012)
A “Crisis” is an abnormal situation which threatens the operations, staff, customers or reputation of the organisation and many business crisis situations can be foreseen (example a supply disruption or logistics crisis or a financial crunch). One can handle a crisis situation through emergency response or recovery plans for a particular incident.
On the other hand, a “Disaster” can be defined as an unplanned interruption of normal business process and cannot always be foreseen. Disasters can be natural disasters or man-made ones. They can interrupt business processes to threaten the continuance and viability of an organization.
Over the years, man-made and natural disasters have unveiled the vulnerability of businesses on a global scale. Many well laid out, documented and executed Business Continuity Plans during normal times do not hold good during times of disasters.
Disasters, by their very definition, do not happen at a convenient time and is always unpredictable, making it difficult to forecast its impact. There is no way of knowing the time it would strike, the form it will take and the damage that it can cause.
Take for example the current COVID19 pandemic – is it a natural disaster or man-made? Many differing opinions exist on this subject.
COVID 19 pandemic and its severity across the world has thrown into disarray all business, trade, commerce and logistics operations. Even the best laid crisis management / disaster recovery / business continuity planning could not have forecast the severity of this threat and impact.
However, that does not mean that one should not attempt to understand the impact of various disaster scenarios and plan for effective response as this is key to business continuity and resilience building.
Business Resilience (BR in short) is dependent on many factors:
- Financial resilience: This is a no-brainer, as any organization that is strapped for cash and liquidity during the crisis is likely to succumb faster than companies with reserves to see through the difficult times.
- Receivable management and avoidance of bad debts should be the focus of primary concern to strengthen cash and liquidity positions.
- During a crisis of the nature of a world-wide pandemic, suppliers, their stability and supply availability would directly impact working capital, raw materials and ideal stock levels to be maintained.
- Bank loans, interest moratoriums and other debt facilities will have to be re-looked and restructured.
- Inability to adhere to existing agreements like lease, rentals, customer commitments on agreed due dates, operational restrictions brought in by regulatory authorities for the common good, etc.
- Top management will face challenges in estimating reasonably possible future cash flows in uncertain conditions.
- Unlike traditional budgeting methods, relying on historical data to project future business is not going to be of use.
- There is a big question mark on what is the “new normal” and how it would be for each industry and within organizations.
- As estimations becomes complex, it would be difficult to show adherence to the existing audit and accounting standards and convince Audit Committee on the underlying assumptions behind such estimations.
- Last but not the least, is the criteria of “going concern” met? Assumptions underlying the certification may be complex and difficult and will have to pass the test of the auditors before reporting and disclosures to the key stakeholders.
- Physical resilience: How deeply affected are an organizations’ locations / premises / access to facilities and how long can it take to restore normalcy? This is an important factor to assess how quickly the business can spring back to normalcy. Is there an adequate insurance cover for such contingencies?
- Data Protection Plan: Is there a plan in place that ensures your existing data is retained and protected? The company’s computing resources such as server, networks, firewalls, access authorizations, hardware and software, etc. need to be protected and safe guarded. This is a must for the continued availability of the Information Systems to function at basic levels during the crisis and without losing critical business information.
- Customer retention: Brand loyalty and assured customer retention makes it easier to estimate potential earnings when normalcy is expected to return to the economy. This factor is more pronounced in retail and FMCG industries where customers can easily switch between brands. However existing revenue contracts may need to be revisited, reviewed and revised in the light of the shutdown.
- Employee retention: An organization that lays off employees during a pandemic or crisis is going to take a longer time finding replacements or skilled people when it wants to get back to business. Migrant workers who have attained skills in many industries may not desire to shift locations but find better alternatives in their own home locations. The shortage of adequate and appropriate human resources may impact resilience of the organization in the long run.
- Workplace transformation: During a pandemic (such as the COVID 19), all essential operations cannot come to a sudden standstill. It is important to ensure that basic activities go on without endangering the employees to infectious diseases. Organizations that can quickly bring in, enable and encourage “Work from Home” alternatives can adapt to the situation and show more resilience than those that are not ready with the infrastructure to adopt such measures.
- Digital transformation and adoption: Resilient organizations will always be at the forefront in being flexible and adaptable to new technology and embrace digital transformation. However, this adoption and transformation would be dependent on the financial readiness and budget allocation during times of crisis.
- Emotional / psychological resilience: It is finally the human psyche that matters – whether the key stake holders are mentally resilient and steadfast – in the continuance of business, the form in which it can be carried out in future. Small and medium businesses may fold up in current locations, larger organizations may look at mergers and amalgamations, start-ups may see a bleak future in the near-run.
What is Business Continuity Management (BCM)?
Organizations lay down Business Continuity Plans at various business processes and with emphasis on Information Systems and execute and audit them at regular intervals to ensure preparedness of the organization to handle any event, incident or crisis.
Business continuity management (BCM) enables organisations to restore their businesses to normal operations following an unanticipated disaster or business interruption. To date, however, the corporate BCM capabilities necessary to establish that resiliency generally have ranged from absent to insufficient.
Can a disaster (except probably the weather forecast for a cyclone or typhoon) be predicted to near accuracy? Can one predict if the business will be resilient after the effects of the disaster – say economic downturn, depression, catastrophic effects on humans, country-wide regulations and lockdowns?
Assessing the operational / financial resilience on the Business Continuity Plans is not just limited to Information Technology risks (or protecting information assets and financial information). There is a lot of difference between executing BCM audits in normal times and during unexpected natural or man-made disasters like the pandemic we are currently facing.