Recent events across Europe this year have highlighted that as traditional business interruption policies often only trigger after first-party physical damage has occurred the need for good business continuity management is acute. Hugh Morris examines how seriously companies are taking this.
Events over the first half of 2010 have heightened awareness of the increased complexity of business interruption risks organisations face. From the air traffic disruption caused by Iceland's Eyjafjallajökull volcano, to prolonged strike action across Europe and international civil unrest, these incidents represent an emerging class of business interruption risks where no actual physical damage takes place.
Given that most traditional business interruption insurance policies are not triggered unless first-party physical damage occurs, this makes the need for good business continuity management across Europe all the more acute.
Marsh published its second business continuity benchmark report covering Europe, Middle East and Africa at the Association of Insurance and Risk Managers conference last month. The report, which examined the attitudes of risk managers across the region solicited responses from organisations in 11 major industry sectors in over 20 countries, and over 50% of respondents were from organisations with over 1000 employees.
The last survey was conducted two years ago, in the eye of the financial storm, and its findings painted a somewhat bleak outlook for business continuity management in EMEA. On the face of it, this year's results make much happier reading: 83% of respondents believe that BCM is integral to their risk management and that it is understood and supported by senior management.
However, despite BCM being thrown into the spotlight this year, only 41% said that BCM had given them a better understanding of their business and just 29% felt that it had led to improved risk-intelligent decision-making.
While these results show that firms value BCM much more highly than at the time of the last survey, many appear to be over-confident in their ability to manage their business continuity and supply chain risks. This leaves their organisations highly vulnerable to physical disruption and economic conditions.
Two of the largest sectors represented in the survey were manufacturing and financial services, and there are some striking differences in their approach to BCM. The financial services sector has historically been seen as the trailblazer in BCM, mainly driven through regulatory compliance. However, this can lead to too narrow a focus in their BCM programmes, often shown in the lack of recognition in respect of their reliance on increasingly complex supply chains.
Only 43% of respondents from the financial services sector agreed that their BCM plans covered the entire spectrum of their supply chain risks, such as operational disruption and credit flow, highlighting that only the most advanced financial services firms realise how important and vulnerable their supply chain can be.
As the global recession served to remind us all, financial services firms can be equally, if not more, at risk from supply chain disruption than other sectors due to the complex network of inter-dependencies with other financial institutions. The domino effect of firms not being able to supply each other with capital can - and did - have far reaching consequences globally.
Conversely, BCM is a newer discipline generally in manufacturing businesses, and these organisations tend to focus on requirements from customers, shareholders and insurers. Consequently, there is a greater understanding of reliance upon suppliers, and the extension of BCM programmes to cover the entire upstream and downstream value chain. This is reflected in the survey results: over 80% of respondents in this sector agreed that their BCM arrangements have been enhanced to assist in managing interruptions to their supply chain. It is clear that the manufacturing sector is taking a more mature approach to BCM, often integrating this work with enterprise risk management programmes.
While the British Standard for BCM, BS25999, was published in 2006, only 42% of overall respondents said that they intend to align their BCM programmes to the standard within two years. This figure is much higher in the financial services sector, reinforcing its comfort with regulation and strict rules. These figures have not changed significantly from those in the 2008 survey, despite a larger percentage of respondents representing organisations outside the UK. This demonstrates the increasing recognition of BS25999 as best practice in BCM in other parts of the world.
When implemented correctly, BCM can be a useful factor in making strategic decisions. The information gathered in the correct implementation of a robust BCM programme can lead to a better understanding of the business and the dependency on resources required to continue critical business operations, enhancing a more holistic approach to risk management. Those organisations taking such an approach are often the ones leading their respective industries, and taking account of the importance of resilience in measuring value when making investment decisions.
BCM is not an optional extra; along with risk management more generally it is critical to any European organisation's future success.
Hugh Morris is a managing consultant at Marsh Risk Consulting's business continuity management practice.
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