The recent power outages reported in areas of Johannesburg have increased awareness of the necessity for businesses to have a strategic contingency plan, says Paul Skivington, a director of Enterprise Risk at Alexander Forbes Risk Services.
Power failures in parts of Johannesburg have regularly left residential areas, businesses and medical facilities powerless, resulting in myriad losses and untold damage. Losses include critical data and productivity, affecting on revenue, efficiencies and reputational damage caused by a breakdown in communications and an inability to deliver products and services as scheduled, Skivington said.
“Even very basic risk issues such as inoperative traffic lights, building lifts, security systems, inoperative medical facilities and the inability to continue business as usual are among the perils caused by a power failure that need to be accounted for in a risk assessment and contingency plans,” says Skivington.
Power outages are usually unplanned and unexpected, and are often caused by unforeseeable events such as storms, cable theft, vandalism, fires, failure of equipment or an emergency switch-off. In addition, as the city grows, demand on power generation and distribution systems increases, so the risk becomes more and more concentrated.
While such events causing business interruption are unanticipated, business interruption or discontinuity can be prevented or minimised by evaluating the business’ risk vulnerabilities and preparing an effective contingency plan.
“Prevention is always better than cure,” says Skivington, pointing to how few businesses have sound and tested contingency plans in place that can be implemented when the power fails.
An evaluation of business risks should be considered normal business practice, particularly in light of new aspects of the King II report on corporate governance. King II advocates that a board of company directors should be cognisant of and report potential business risks, taking respective action to diminish the relevant risks.
Skivington says people acknowledge the importance of a comprehensive risk assessment more so after they experience a disruptive event and bear witness to its often devastating effects on a business, its dependent businesses and the market/s in which they operate.
“Perception is often the reason why companies prevaricate doing a risk assessment,” says Skivington. He says factors shaping the perception of businesses deciding on whether to conduct a risk assessment and developing a contingency plan include:
- the cost/benefit ratio — a business may erroneously believe that the cost of a risk assessment and development of a strategic contingency plan outweighs the benefit; however, they neglect to consider the absolute cost of neglecting this vital aspect of sound business management;
- a business may believe that the likelihood of an actual event causing business disruption occurring is improbable and consequently opt to rather chance fate, hoping that “it will never happen”; and
- a business may be oblivious of the potential risks implicated in its business.
“The recent power outages highlight the importance that needs to be placed on a business obtaining professional advice on its potential risks and business disruptions, having a contingency plan in place and regularly testing its effectiveness, as well as challenging the perception of possible risks,” says Skivington. — I-Net Bridge