Why business continuity and crisis management?

We are now going to look at why we have Business Continuity Management (BCM) and Crisis Management (CM) and their roles in mitigating threats and hazards to organisations and the communities in which they operate.

The threats

Potential threats to organisations are often monitored and identified by a process called ‘horizon scanning’. Once successfully identified, an organisation has the ability to select threats that require more detailed planning to mitigate risk.

The Business Continuity Institute (BCI), in conjunction with the British Standards Institute (BSI), has compiled a ‘horizon scanning report’ which shows the perceived threats that organisations may face in 2019.

The top ten threats identified are:

  • Cyber attacks and data breaches
  • IT and telecom outages
  • Adverse weather/natural disasters
  • Critical infrastructure failure
  • Reputational incident
  • Regulatory changes
  • Skills shortage
  • Supply chain disruption
  • Utility failure
  • Political change

Some threats are more common, while others are dependent on factors such as geography, social conditions and industry sector.

One example of supply chain disruption could be caused by industrial action, for example British Airways in 2018. Action by the staff of one of its suppliers and resultant industrial action by their own employees led to hundreds of flights being cancelled, 100,000s of stranded passengers and an estimated cost of £40m to the airline.

This shows the relationship between threat and consequence as we will now consider.

The consequences

Larger organisations may be able to cope with such costly events but according to the US Federal Emergency Management Agency, 40% of small businesses never reopen their doors following a disaster such as flooding.

Consequences of not having a BCM plan may include:

  • The organisation ceases to operate – leading to job losses
  • Harm is caused to the community or the community needs to be relocated (permanently or temporarily), for example in nuclear disasters such as Fukushima or the Vale S.A. dam failure in Brazil in January 2019
  • Legal and regulatory fines, as well as possible imprisonment for board members

Research conducted by Knight and Pretty (1997) demonstrates the impact of catastrophes on shareholder value. Taken from this paper, the graph below indicates that organisations can recover their shareholder value after a disruption or crisis.

Recovery graph, Select the image to expand a pdf version that contains alternative text.  The pdf is also available in the downloads section.

Initially all organisations in Knight and Pretty’s research lost share value, but some recovered and thrived, while others never recovered their pre-incident share price over a 250-day period.

Note here that recovery can also mean saying and doing the right thing at the right time via an effective crisis management communications structure.

The benefits of BCM

The importance of business continuity management is successfully illustrated in the following statement by Eliza Manningham-Buller (former director general of MI5) in her address to the Confederation of British Industry (CBI):

‘I am often asked what single piece of advice I recommend that would be the most helpful to the business community. My answer is a simple but effective Business Continuity Plan that is regularly reviewed and exercised.’

(Manningham-Buller 2010)

Aside from meeting regulatory and legal requirements, by having BCM and CM in place, organisations benefit by:

  • Competitive advantage by proving to stakeholders that they have plans and a communications structure in place to continue the supply of services/products in the event of a disruption
  • Financial benefits by eliminating areas of ‘weakness’ within the organisation such as process duplications and omissions that absorb time and resource. By removing weaknesses, an organisation can become more resilient and cost-effective.
  • Reduced premiums are often offered in relation to a specific type of insurance product called Business Interruption Insurance (BII). According to the British Insurance Brokers Association and the UK Cabinet Office, more than 80% of insurance brokers state that premium discounts are given.
  • Greater staff involvement and potentially less staff attrition. As part of an organisation’s duty of care to its staff, BCM can be on the social responsibility agenda.
  • Maintaining (and sometimes enhancing) the organisation’s reputation and brand image

As a way of highlighting the potential benefits of implementing BCM and CM strategies, when the World Trade Centre in Manhattan was bombed in 1993, 150 out of 350 organisations went out of business.

Conversely, in 2001 when the disastrous 9/11 attacks occurred, many organisations who had robust and tested plans were operational within an acceptable time-scale.

Later, in 2012 when Hurricane Sandy flooded Lower Manhattan, organisations were forced to suspend operations due to power loss and flooding, but many firms had plans for alternative operations outside of the affected area.

Essentially, organisations have BCM and CM in place in order to prepare for and respond to disruptive events which directly or indirectly affect the organisation. By having them in place they can manage the operational elements that allow them to function normally and maintain revenue generation/service provision.

Your task

Look again at the graph that we have provided from the study carried out by Knight and Pretty.

What do you think this shows about the effectiveness of response in the short, medium and long term?


References

BCI (2019) Horizon Scan Report 2019 [online] available from https://www.bsigroup.com/globalassets/localfiles/en-ca/Resources%20ca/Business%20Continuity/bci-horizon-scan-report-2019-ca.pdf [07 May 2019]

Manningham-Buller, E. (2010) Address to the Confederation of British Industry

Knight, R.F., Pretty, D.J. (1997) The Impact of Catastrophes on Shareholder Value. Oxford: Templeton College

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This article is from the free online course:

Business Continuity Management and Crisis Management: An Introduction

Coventry University