How can Risk Management help the businesses during COVID-19

Risk Management during COVID-19

Many businesses faced disruption globally due to the impact on supply chains, travel, manufacturing, and financial markets. In a situation like COVID-19, it is important to have an agile approach to business planning and broader risk management. Businesses should understand to review the current risk appetite framework to gain an understanding of the impact on the organization’s current risk profile.

The risk management functions should have proper testing plans so that they cover pandemic risk elements. COVID-19 has reminded everyone that a company’s risk profile can be changed quickly by the risks that emerged from the pandemic. Organizations should be prepared to escalate such risks in the future even if they are not a risk in the present time.

Risk Management during COVID-19

The principles below can help an organization to move through the COVID-19 crisis and beyond:

  1. Identify your risks – Organizations should use risk management to predict the unpredictable. Risk navigation associated with the pandemic can only be done once the identification of risks is done. Before taking any action, the company should catalog the risks they may face over the next month, three months, six months, nine months, and a year. They should identify all kinds of risks related to operational, strategic, financial, and reputational. Companies should try to update their risk profile as the world goes through these uncertain times.
  2. Be agile – The plans which a company had two months ago are no longer feasible or appropriate for today. As we navigate a new normal, the world is collectively questioning everything. Organizations should understand their values and should redefine how they will realize them once the pandemic is over. They should be ready to become uncomfortable. If they navigate this period with flexibility and proper understanding, it will help them to move forward even in unprecedented times. Organizations should become creative in their approach and they should listen to their stakeholders as it can help them to understand where they have to fill a void.
  3. Employee oriented approach – The backbone of every organization is its employees. The mismanagement of employees in this significant time will reduce the morale of the employees. Organizations should let their employees know that they have a business continuity plan and a crisis plan. Work-related with ERM should be supported by top management but should also involve the entire organization in order to succeed. ERM can lead to greater transparency and trust as it encourages communication between all the departments of the organization. As we move through this pandemic, organizations should help their employees by implementing flexible work hours or by asking them what they need to do their job during such unprecedented times. This will make them physically and mentally able to help the organization.
  4. Consider business continuity – The main reason to have a business continuity is to make sure that the business is able to survive a critical incident. A business continuity plan is implemented over phases to reduce the recovery time and mitigate the impact.

Organizations should consider both internal and external factors for BCP Plan.

Internally – Organizations should identify critical functions, employees, and evaluating how, where, and by whom the critical services are provided. They may consider suspending non-essential work to support social distancing and reducing unnecessary expenditures.

Externally – Organizations should do a thorough analysis of their supply chain functions and analyzing all the risks faced by their vendors, distributors, and other stakeholders that they rely on.

Risk managers should help to manage the threat from COVID – 19 by having a discussion with other members of the senior management. They must ask the right set of questions so that a recovery plan can be executed. This will help them to prepare for the next major risk event. When the dust settles, organizations that took great steps to mitigate the risks during the pandemic will have a much better reputation than other organizations.

Contributed by Shahran Sayyed (PGDRM Jan’20)

Read Leveraging ERM principles to better respond to the pandemic crisis.

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