SCORE

By Steve Czerniak, Subject Matter Expert, SCORE of Southeast Michigan

Don’t let any easing of COVID-19 pandemic lull us into a false sense that things are, in any way, back to normal. The pandemic is representative of a class of risk items that are very rare in their occurrence (low probability) but have catastrophic consequences (high impact). Remember how catastrophic COVID-19 was to most businesses. The last such event in the U.S. was the Spanish flu in 1918. It would be imprudent not to do a better job of recognizing what could go wrong and what action needs to be taken to mitigate the effect. I’ve included some ideas (not a comprehensive list) of other such events that could catastrophically impact a business.

Maintain the Resources Need to Operate the Business

Most businesses recognize that they depend on wide variety of goods and services in their supply chain. That includes utilities (gas, electricity, water, sewer, garbage, internet access), raw stock suppliers (materials to be processed into product), purchased finished suppliers (material for the product, consumables, office supplies) and services suppliers (contracted production, internet sites, information technology, banks, credit card processing, health insurance providers, consultants, contractors). Not-for-profits are dependent on a continuous funding stream of membership fees, contributions or grants. If the business is denied these supplies they cannot operate.

What many businesses learned from COVID-19 is that they are also dependent of the supply of goods that they didn’t anticipate. A great example is personal protective equipment. If you want to operate your business, you need to provide PPE to your employees. That PPE must be purchased and there’s a lead-time to such a purchase. All too many businesses (and consumers) were caught in short supply and that delayed their ability to or the timing of reopening. Learn from what was recently experienced. Other examples include: disinfecting wipes, hand sanitizer, facial tissue.

Before the pandemic, some firms were being financially operated near the brink of failure. Leaders were optimistically believing that the future would look like the past. Since they were managing to keep the business operating, the same would be true going forward. Unfortunately, COVID-19 had other plans. When the business is forced to close and customers are not visiting, the revenue stream is interrupted and therefore cash flow. The rent is still due, commitments still have to be paid. This can be a formula for disaster.

Conduct a "What-If" Analysis

Business leaders need to conduct a what-if analysis as part of their business risk management. (Also read: https://detroit.score.org/blog/its-never-risky-manage-risk-use-now-opportunity ). A what-if analysis should include:

  1. Describe the event (Identify the Potential Risk Item)
  2. Describe the effect. (Quantify the Likelihood of Occurrence; Quantify the Severity of Consequences)
  3. What should be done to mitigate the effect? When should it be done? Who needs to do what? Vary the severity of the event or the effect and see what happens (Identify Risk Response Strategies)
  4. Action plan should the event occur - Make sure to consider the scope of the work that will be required, the schedule and timing of the action, the cost of the necessary actions, and the risk of the action plan itself (Develop Risk Response Plans)

AN EXAMPLE WHAT-IF ANALYSIS (DRAMATICALLY SIMPLIFIED):

  1. EVENT - Disruption of electrical service
  2. EFFECT - Halt to production, internet access, computer equipment usage, lighting, facility management, building access, building security, HVAC
  3. MITIGATION - Natural Gas Powered Back-up Generator
  4. ACTION PLAN - Select, procure, install, periodically test and maintain

NOTE: Would be adversely affected by the simultaneous loss of the natural gas supply

Examples of Catastrophic Consequence, Low Probability Events:

Social

  • Global war
  • War on U.S. soil - attack by China
  • Terrorist nuclear attack on the U.S.
  • Coup d’etat
  • Long-term civil unrest - coordinated rioting, racial upheaval, civil war
  • Collapse of the food chain - e.g. locust, limited labor, drought
  • Coordinated terrorism - mass poisonings, multiple bombings
  • Alien first contact - friendly, or not so much
  • Zombie apocalypse 

Technological

  • Radical new technology that renders everything before it useless - quantum computing, grass that stops at two inches tall, replicator
  • Disruption in gasoline supply, natural gas supply, water supply, sewer service, or garbage service
  • Disruption of electrical power - perhaps from a foreign hacker, solar flare
  • Disruption of the internet - Global denial-of-service attack
  • Complete shift to on-line shopping
  • Recurring pandemics or tandem pandemics
  • Cascading events - e.g. Fukushima: earthquake + tsunami + nuclear power plant meltdown
  • Fully cashless society
  • Transportation Disasters - Infrastructure failures, rail, maritime, air, spaceflight

Economic

  • Global depression
  • Loss of faith in the U.S. dollar - A “call” placed on the national debt
  • Massive unemployment caused by artificial intelligent and job automation
  • Failure of Medicare or Social Security
  • Failure of the business’ supply chain
  • U.S. adopts a flat tax

Political

  • Foreign Trade collapse
  • Legal / Contractual
  • Martial law

Ecological or Environmental

  • Tornado, flood, ice storm, blizzard, Icelandic volcanic ash, super volcano eruption, dust bowl, hurricane, meteor strike, wildfires, heat wave
  • Oceans rise and coastal regions become uninhabitable
  • Temperatures go up (or down) and being outside is very difficult

About the Author

Steve Czerniak retired after a successful 37-year career as a leader and innovator. The last 15 years were a series of opportunities that honed his skills as an internal consultant and “change agent.” In retirement, he is a volunteer consultant and a SCORE Subject Matter Expert for the Southeast Michigan chapter. His personal volunteer objective is to “derive personal satisfaction from helping others, and the organizations they operate, to develop and prosper.” Visit his site: spczgivingback.org.

 

 

 

"Fool Me Once" - A COVID-19 Cautionary Tale for Business Owners