Start turning risk into opportunities
Dusting off a plan in a ring binder sitting on an office shelf is never a good start to managing a crisis. It’s likely a plan stored this way and those who use it will not be in the same place when a crisis happens and the plan is needed. It’s even more likely a plan stored this way will be out of date and unrehearsed.
Managing a crisis effectively requires rehearsed preparation. No one can predict how or when a crisis will unfold, but if robust and up-to-date plans are in place, they are much easier to adapt to enable an agile response. The coronavirus pandemic has laid bare a lack of preparedness in many governments and organisations, big and small.
Why pandemic risk preparation was parked
Contrary to some reports, the pandemic is not a black swan event, a phrase coined in 2007 by Nassim Taleb to describe extreme events that come as a surprise which in hindsight should have been predicted.
A global pandemic was not only predictable, it was predicted: scientists and experts have warned for decades that such a pandemic, involving a highly infectious respiratory disease virus, was a plausible scenario. It has appeared in the World Economic Forum Global Risks Report for years, has been spoken about by influential figures, including Bill Gates, and the financial heart of London ran a pandemic scenario in 2006.
Yet governments and organisations were shocked by the severity of the pandemic in terms of geographic scale and the velocity with which it spread. Why were many governments and organisations apparently so unprepared?
The pandemic is a high-impact, low-probability emerging risk. These risks do make it onto a risk register, but often fade into the background when risk severity is considered as a combination of impact and probability. Such risks are often hard to detect, difficult to assess and easy to ignore.
Boards are more comfortable with the tangible and finance directors more convinced by arguments to protect immediate issues. By contrast, a pandemic is an intangible, hard to predict and quantify risk, and arguments by risk professionals to develop interventions often fail to get buy-in at the board and C-suite level.
This is important for boards to recognise, not just to reflect on how they have responded, but to plan for the next phase of the pandemic. Organisations may be in the latter stages of the immediate crisis, but in a broader sense we are only at the beginning. The economic fallout, potential further waves of the disease and the unintended consequences are yet to reveal their true forms. Now is the time to learn the lessons from our initial response and be better prepared for what happens next.
COVID broke crisis management “rules”
The challenge in planning for emerging risks, however, is sheer unpredictability. There are many models used to illustrate how crises are supposed to unfold into recovery and restoration phases and eventually normality. COVID-19 didn’t observe this theory and broke the crisis management and business continuity so-called rules.
It is, therefore, crucial that boards and senior management understand emerging risks such as the pandemic require a different approach to conventional risks. In the absence of historical data and firm facts, risk discussions should be driven by structured, creative discussions across business units that bring different and collaborative risk perspectives. How this is interpreted will vary by organisation, but planning and discussion are key for all.
And there are strategic processes to go through. Crises present opportunities; they are periods for innovative thinking, not retrenchment and restoration to what existed before. Organisations have an unprecedented opportunity to rethink and repurpose, but it must be informed by facts and reliable information, not wishful thinking.
Recent research indicates boards are dedicating time to managing risk, but often don’t have the detail to take informed risk decisions. Risk professionals need to join forces and collaborate with their business peers to deliver the foundation of knowledge a board will need to do its job and lead organisations out of the crisis and into the future.