What COVID-19 taught businesses about risk and readiness
- Businesses were caught off guard by the outbreak, with ERP systems failing to execute
- Now, enterprise leaders must learn about preparing for the unexpected and acting out plans
- ‘Impacts-based’ response plans and personnel with risk management skills are crucial
Back in 2015, Bill Gates presented a TED Talk where he issued a warning about how the world won’t be ready to face the next pandemic. When the video resurfaced recently, many were shocked at just how accurate a prediction it was.
The Microsoft founder pointed out that not having a foolproof plan of action to fall back on when unexpected threats or risks escalate would lead to our demise.
Although he was referring to a lack of preparedness among global healthcare systems and governments, there are lessons businesses can take on the importance to be ready for unexpected and unfavorable circumstances.
Failing to plan is planning to fail
With many organizations caught entirely off guard by social distancing measures, it was clear that many businesses had never considered circumstances where part or all of their operations would have to go ‘remote’, let alone much of an entire economy.
While many might have had an enterprise risk management (ERM) strategy in place, many failed to execute, despite there being a high chance that countries around the world could follow that of China.
Many businesses outside China saw lockdown orders being enforced, the changes that took place and the disruption caused to businesses, but didn’t take the chance to assess their ERM policies and evaluate contingency plans.
“The biggest problems with a pared-down, formulaic approach to ERM often don’t emerge until it’s too late.
“Complicated flowcharts and in-depth policy manuals intended to guide escalation decisions during a crisis are often difficult and time-consuming to follow; they aren’t a substitute for an effective ERM function,” said Gartner Practice Vice President, Matt Shinkman.
What makes ERM effective?
According to research by Gartner, businesses that can tackle emerging risks with agility already have a clear set of action plans composed – not merely theoretical practice modules.
These businesses are ones that pay close attention to ERM systems – ones that leverage the right technology to help them identify risks and assess how these risks will affect enterprise goals, capital, and workforce resilience.
In making ERM systems effective, businesses must strive to craft procedures and policies that are based on possible impacts, as well as having leaders that examine specific risks and can mobilize action efficiently.
These qualities can significantly influence how an enterprise can adapt to the changing circumstances, protect business assets, secure the trust of stakeholders, ensure business continuity and possibly, foster growth opportunities.
Readying to respond
In building an “impacts-based” response procedures, the business must set a threshold that could signal a need for escalated actions. Turning to data and adopting predictive analytics capabilities can definitely help.
Businesses should ask themselves: If the situation worsens how can employees be protected? What happens if manual workloads can’t be carried out anymore? How can customers continue to be served? The answers to these questions should be in the form of credible action plans and procedures.
Next, it’s important to empower executives with risk management skills. Having them understand how emerging risks can impact their teams and then, the operation can guide these leaders in better examining possible threats.
Empowering them with the responsibility to decide on the course of action will make them naturally more alert but, of course, having a comprehensive understanding of business risks would be the first step here.
A bleak perspective on how ready their teams are can be costly to the entire operation.
“Risk is like cholesterol, there are good and bad kinds,” said Shinkman.
“But the good kind helps an organization to take bigger, riskier growth bets — which is the single biggest differentiator of profitable growth.”
With that in mind, it’s important to note that investing time in ERM systems is not only for the sake of surviving a unforeseen crises, but it’s an essential business model criterion that will benefit the enterprise tremendously in the long run.