Risk management has always been important for maintaining business continuity, but in an age when leaders are facing multiple, simultaneous challenges and fierce competition, it can be the difference between success or failure.
Cost pressures due to inflation, faltering supply chains and cyber risk are just a few of the challenges leaders across Australian businesses are facing. As we head into the new year, Greg Duncan, Vice President, Client Service Manager for FM Global ANZ, shares five tips to help leaders ensure business resilience in 2024.
Exposure to climate-related risks
Over the past few years we’ve seen an increase in exposure to climate-related risks – and that level of risk and impact is likely to continue in the coming year. Australia is already facing extreme heat conditions due to an El Nino weather event, and the associated risks of bushfires, droughts and cyclones are a very real concern for business leaders.
To minimise the potential impact of climate change, organisations need to understand how these climate-related risks can affect their operations and then invest in appropriate mitigation of those exposures. This can include such things as installing mesh on building openings to prevent bushfire embers from getting into buildings, installing physical barriers to prevent flow of floodwater or better securing a roof that is exposed to wind.
The identification and management of such exposures can also assist companies with any climate risk-related reporting obligations that they may have. For example, reporting on acute and chronic physical risk within the Task Force on Climate-related Financial Disclosures (TCFD).
Replacing current energy sources with renewable energy has been identified as a key action to reduce emissions at scale, and there is growing pressure from many business stakeholders and governments to embrace cleaner alternatives.
The benefits of reduced carbon emissions, improved energy security and reduced energy costs are well known, but these advancements in technologies have created new exposures that can threaten business operations. For instance, the impact of a hailstorm on newly installed solar panels, or a battery fire that either affects incoming power or exposes the rest of your operations to a larger fire. Well-intentioned transition efforts may do more harm than good through the unmitigated introduction of new risks.
As industries embrace renewable energy sources and electrification, working with your insurance company to better understand and mitigate these risks is critical. Companies that implement appropriate strategies to protect their assets, minimise their exposures and avoid potential downtime will be at a significant competitive advantage.
The insurance industry has not been spared from the impact of inflation. The costs of claims have risen due to factors like higher building material and labour costs, resulting in some cases in higher insurance premiums.
To minimise the impact, companies in Australia can invest in better risk management to improve the risk quality of their business. This can include constructing or leasing locations with better risk quality building materials or installing correct fire protection at existing locations.
To ensure optimal insurance coverage, companies should also submit up-to-date, accurate values at the time of their insurance renewal. If the declared values are correct, the insurer will be more confident that there won’t be a discrepancy between expected and actual loss amounts if there is a claim.
Supply chain issues
COVID-19 transportation and logistics issues showed how severe a supply chain problem can be for many businesses in Australia. The fallout from these experiences will continue to preoccupy many industries in the new year and beyond.
With the growing frequency and severity of extreme weather events likely to have an ongoing impact on supply chains in the future, understanding your exposure and the exposure generated by conducting business in certain countries is key to managing this risk.
When it comes to supply chain risk, many companies often overlook the need to have an up-to-date and robust business continuity plan that clearly outlines options if supply of materials is disrupted. This may include things such as having alternative suppliers or supply routes or adjusting stockpiles or inventory levels during a period of increased risk. Insurance coverage alone is not always enough.
With the increasing digitalisation of businesses and the growing number of cyberattacks in 2023, cybersecurity risks remain well and truly on the agenda.
Discussions on cybersecurity have mostly revolved around protecting information technology (IT) networks – for instance avoiding data breaches and customer data leaks. This is important, but urgent attention is also needed to protect operational technology (OT) networks.
The OT network hardware and software that monitors and controls the devices, processes and infrastructure often used in manufacturing and heavy industry used to be isolated. But increased connectivity and digitalisation to generate valuable performance data has at the same time made business networks more vulnerable to cyber-attack.
OT attacks aren’t just about financial gain or data theft; they could also result in significant physical damage or disruption to critical services. Companies need to allocate resources and implement proactive measures to mitigate the potential impact of OT network attacks.