Amid COVID-19 Recovery, Companies Must Focus on Other Risks
As cases of COVID-19 continue to increase both around the world and in the US, businesses need to cast their glance beyond the immediate threats posed by the coronavirus pandemic, and consider the potential and actual repercussions from new and emerging risks, including a possible second wave of coronavirus, natural disasters, and the ongoing protests against systemic racism and structural inequality.
Allison Pan, a senior vice president within Marsh Risk Consulting’s Emerging Risks Group, recently discussed preparation for emerging risks with Jeff Alpaugh, growth and industry leader for Marsh US and Canada.
Pan noted that the process of economic re-opening has given many senior leaders a sense of comfort and control as they focus on the near-term process of recovery and restoration. Such sentiments are premature, she warned, noting that the economic re-opening is not equal to full pandemic recovery, especially given the lack of a vaccine or widely effective therapeutics. In order to combat the illusion of control, Pan advised senior leaders to “find a balance between the optimism of recovery and the realism necessary to prepare for the next pandemic wave, the next challenge.”
Key to that balance is building strategic agility into every organization’s decision-making cycle. Even while senior leaders prepare to scale their operations back to a “new normal,” they must have the agility to pivot their attention towards an array of new risks that could come their way. This year’s Atlantic hurricane season, for example, is expected to be above normal, while anti-racism movements and protests can add to the uncertainty triggered by the pandemic and create additional health and return-to-work challenges for people and businesses.
Agility is comprised of anticipation and a broadened aperture on what constitutes “risk.” Pan emphasized the importance of developing the ability to anticipate problems on the horizon. “With anticipation comes preparation, having the foresight to understand your future operating conditions,” she said. This doesn’t involve the impossible task of predicting the future, but rather revolves around creating risk forecasts and understanding the potential scenarios facing the organization — a process that organizations already regularly follow for other risks and which should now be extended to emerging threats. Similarly to anticipation, organizations should expand their definition of risk beyond the traditional perils and exposures currently well understood in the risk industry. An open-minded approach to what constitutes a risk scenario can provide critical lead-time as unfamiliar situations emerge.
Pan outlined the need to conduct thorough financial stress tests, asking how your company will be affected in different scenarios — for example, if a second wave starts in October versus January, or even earlier, leaving less time to prepare. Understanding the microelements within scenario planning can allow companies to make smarter decisions on how they can allocate resources and risk capital.
While the past three months have seen wider adoption of forecasting and modeling tools to help companies understand their risks, many companies are not yet applying these lessons effectively. Instead of continuing to look at risks in silos, organizations must examine the interdependent nature of their risks and where they might converge into aggregated areas that are greater than the sum of their parts. Then they need to measure the impact of those scenarios to understand how they will be affected and be able to plan accordingly.
Pan emphasized another area of focus – supply chains, especially as we start the road towards recovery with the recognition that a second wave is likely. Organizations must garner an understanding of the resilience and reliance of their vendors. This includes analyzing their vendors’ own supply chains and potential geographical challenges.
Ultimately, while not all risks can be anticipated, mitigated, or removed, corporate leaders can hedge against the unknown by instituting a culture of agility and flexibility, one that dedicates resources to strategic risk forecasting to support organizational health and viability in even the worst of times.