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We believe that to effectively deal with business-disruptive events, organizations must enhance their resilience management processes and treat them as a key component of their enterprise risk management strategy.
Organizations worldwide are under immense pressure due to increasing volatility, uncertainty and complexity. They face the risk of sudden, disruptive events, such as the Eurozone crisis and market wobbles stemming from the Chinese economy slowdown, as well as natural disasters. These events, even if they occur in remote locations, can significantly impact a company’s operations and supply chains.
Our new report highlights that resilience management is a crucial component of the risk management process. When an organization looks at the management of acute events and disruptions across all functions with an integrated view of risk categories and exposures, it is better positioned to protect its ability to grow and achieve its objectives.
Read the report to find out:
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Although organizations today recognize the changing nature of risks, very few of them are truly resilient. There are certain deficiencies in the traditional resilience management approach, which include:
Development of resilience initiatives by noncore business functions. Most business continuity and crisis/risk management programs are developed and managed separately from companies’ core business operations, and most plans are tactical rather than strategic.
Disconnect from financial metrics. Few resilience programs link risk exposures to cash flows and financial metrics, even though these elements are heavily exposed to the impact of disruptive events.
Lack of integration with other risk activities and functions. Business continuity and crisis management are not typically central to enterprise risk management programs or similar functions. In some cases, they are very loosely connected.
We believe that an “advanced resilience” approach can help organizations address the business-disruptive events and gain competitive advantage from them. Overcoming common deficiencies in resilience programs involves integrating resilience into enterprise risk management and the core business.
We have identified three components critical to this approach:
Leadership. Senior management should be fully engaged and play an active role in setting the resilience agenda. This involves the elements of preparation, communication and action.
Positioning. Executives should closely integrate risk management and business continuity planning into enterprise risk management programs.
Execution. Leading companies innovate by using technology to monitor events, identify issues and engage in scenario-neutral planning to simulate various events and outcomes. They also use real-time stress tests to identify discrepancies between planned assumptions and how things would play out in case of an actual disruptive event.
There are significant opportunities for companies to prepare themselves not only for the downside, but for the upside of extreme events. Achieving this level of readiness entails moving from “advanced resilience” to a much higher state of integration and readiness we call “high performance beyond resilience.”
No matter where the organization is on the spectrum of preparedness for unforeseen occurrences, there are a number of initiatives that can help companies take advantage of opportunities that come up while protecting themselves from potentially damaging events. These include:
“Unthinkable upside” playbooks: Prepare plans and options to restore operations and recover lost business as well as take advantage of major events.
Business model reconfiguration: A more comprehensive understanding of the potential impact of events may lead some organizations to optimize their business portfolios.
Reposition the supply chain: An assessment of key suppliers can help reveal overconcentration in some areas within the industry. These insights can then be used by companies to reposition their supply chains so that they might gain market share from competitors in the face of unexpected events.
November 5, 2013
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