COVID-19 has swept through the global landscape knocking down almost everything that stands in its path. Human lives (most important asset for firms), national and regional economies are threatened by the continued spread of the virus. The health crisis which is causing shocks to the global financial system is yet to peak at different global hotspots (United Kingdom, Spain, United States, Spain). However, economic historians are already comparing its evolution and economic devastation to the Black Death disease that decimated Europe in the fifteenth century as well as the Spanish Flu pandemic of 1918.
The evolving crisis is fluid and is causing massive strain on firms of all types and sizes with federal, regional and national governments proposing various stimulus packages to offset its economic ramifications. Frontline business executives are also racing to get a hold of their critical operations so as to survive and possibly recover from the unfolding crisis. These are uncertain times and call for the activation of Business Continuity Plans. However, how should firms respond to the heightened risks as exposed by COVID-19 from an operational risk perspective?
A survey conducted by ORX in February 2020 gauged how its member organization were responding to the ensuing pandemic. The takeaways of the survey provide some insight for operational risk functions of firms. A summary of these takeaways are presented below.
Communication is key
The consensus amongst survey participants is that all communication should be clear, timely and factual. Mark Beasley, KPMG Professor of ERM Initiative writing on COVID-19 related risks states that business executives need to focus on how they communicate with their key personnel to provide information that help in decision making about what needs to be done. This must be done frequently given the ever-evolving nature of this crisis. But, as they do, they need to approach these communications with compassion, empathy and flexibility. Many employees, suppliers, customers and other key partners are stressed for a number of reasons (such as lockdowns) and executives don’t want their tone or lack of clarity or silence on important matters to amplify insecurities writes Professor Beasley.
Business continuity plans are being stretched
The nature of the pandemic is such that nothing is spared. Firms have to endure impacts on all fronts as states/nations lock their borders and initiate internal lockdowns. Thus, employees, offices, suppliers, customers and key partners could be affected in a moments notice as witnessed in India a couple of days ago. Where there are partial lockdowns, full lockdowns are eminent.
Evaluate responses daily
As the crisis unfolds, firms need to evaluate their responses regularly. Ideally this should be on a daily basis and same communicated internally to all key personnel. As Professor Beasley writes, business executives have to keep an eye on developments on all fronts and look out for data that might suggest that things are going awry. Once identified, monitoring is key to ensure risks are contained and acted upon (when going out of limits) without delay.
Consider the impact of your organisations response
Accounting for the impact of a firm’s response to the pandemic is important. For instance, as noted by Boehm et al in a March 2020 Mckinsey and Company report on the dual mission of cybersecurity in this crisis, chief information offers have to strike a balance between maintaining business continuity and protecting their firms against new cyber threats. Undoubtedly, firms’ decision to keep employees safe and deliver customer service during the pandemic has resulted in a lot of work-from-home scenarios and heightened cyber attacks.
The COVID-19 crisis is an extreme tail event that may soon be in the loss databases of operational risk functions of firms but before then the days ahead are simply uncertain. Drawing from these takeaways could help business executives and risk managers in particular to navigate the course of the COVID-19 crisis.
The writer is the COO at SOFCOM. Licensed Broker Member of Ghana Commodity Exchange.