Today, any risk assessment must be as global and interconnected as the economy in which a company competes. Building resilience to the potential impact of severe weather events – which can be distant from a company’s main operations and disparate in nature – is a formidable challenge for an executive team. Formidable but possible.
According to the World Economic Forum’s Global Risks Report 2018, three of the top five threats in terms of likelihood are environmental: extreme weather, natural disasters and the failure of climate change mitigation.
Consider what’s happening in Cape Town, South Africa’s second-largest city. After a three-year drought, the city is now predicted to run out of water by 2019
. The economic impact has already arrived: The South African agriculture industry has lost 37,000 jobs and .17 billion (14 billion South African rand), while 50,000 people have been pushed below the poverty line. Food prices are climbing and severe water rationing has raised the specter of a public health catastrophe in a densely populated city of nearly four million.
There are, of course, serious direct and indirect potential impacts to a company doing business in a community facing this kind of monumental crisis.
It wasn’t unforeseeable. Cape Town’s population has swelled
by 79 percent since 1995, while dam storage increased by a paltry 15 percent in the same period. Could scenario planning by businesses have helped alleviate the situation? Perhaps.
Scenario planning not only helps identify possible risks, but allows you to build resilience to these events as you prepare for different outcomes. The more”What If?” scenarios you can consider, the better, because it allows you to see the interconnectedness of events and actions.
One of the best ways for businesses to build resilience to severe weather events is to invest in the communities where they operate. The stronger the local community ties, the more likely that community will bounce back from a crisis. There are vital shared interests between the community and the enterprise that conducts business there. As you conduct scenario planning, lessons learned from past events are valuable for disaster risk-management professionals. There should be an urgency in using those lessons to better prepare for the possibility of the next big event.
Relying on years of first-hand experience and extensive research, Zurich has brought to light a number of lessons that can be used to prepare for most types of calamities in virtually any part of the world. Using Post-Event Review Capability (PERC)
methodology, our report, “Extreme weather events: How hard lessons strengthen resilience against the next big event
,” illustrates strikingly similar challenges faced by risk managers regardless of where they operate or the particular hazards they face.
Zurich’s uses the PERC methodology in determining the resilience of people, supply chains, systems, legal and cultural norms before, during and after a disaster – examining what went well and what didn’t. Once an honest assessment of how an event was managed has been completed, the lessons that have been revealed must be incorporated into your planning and turned into action.
Building resilience against risk doesn’t guarantee success, but inaction can assure failure.