Skip Ribbon Commands
Skip to main content

Risk Management Sins


MNP's TAKE: All seven costly sins below are fundamental parts of an effective risk management plan. But even if you feel you have an comprehensive plan in place, you may still be at risk for an eighth costly sin. As noted below, testing of your plan is essential - but so is evolving it.

You should be reviewing and updating your emergency response plan on at least an annual basis, ensuring all contacts are current, new employees are aware of its existence and protocol is reviewed. In addition, your response plan should be updated whenever significant new assets are introduced or when you are made aware of a new threat. For example, if you implement a new sales platform for your team, update your risk management and emergency response plan at the same time, in the event you can't access it. Are the sales contacts backed up somewhere else? Do you have a main point of contact (and a backup) in the event of a catastrophe? Is the system hacker-proofed? It's critical to remember: Don't wait until your annual review time to update your plan if you are introducing essential new elements to your business.

To learn more about creating, testing and maintaining your emergency response plan, please contact Cliff Trollope, CPCB, CRM, CAS, at 416.515.3851 or [email protected], or your local MNP Enterprise Risk Services Advisor.


Sadly leaders often commit them.

The past decade has brought a series of unprecedented natural disasters, including Hurricane Katrina, massive floods in Thailand and Pakistan, the earthquake and tsunami that pummeled Japan and Superstorm Sandy. 83 percent of enterprises surveyed by the U.N. Global Compact stated that weather poses a risk to their products and services.

Since 2000, economic losses from natural disasters are estimated at US$2.5 trillion globally-50 percent more in damage than previously expected - according to a report released by the U.N. Office for Disaster Risk Reduction in May 2013. In light of this gap, it would appear that potential economic losses from natural disasters necessitate more stringent board and senior executive management examination.

While companies cannot prevent a natural disaster, they can manage the considerable risks to their property, infrastructure, ongoing business operations and global supply chains, risks of which business leaders are certainly aware. A survey of chief executives by PwC revealed that a "natural disaster disrupting manufacturing and supply chain operations" was considered the "worst impact" by 58 percent of the respondents; 86 percent of respondents to the U.N. Global Compact survey described their ability to effectively respond to weather-related risk as a "competitive opportunity."

A case-in-point is provided by the global electronics industry in the aftermath of the Japan earthquake and tsunami. Production of critical components for the automotive industry was severely disrupted. One Japanese auto maker cited a loss of US$1.2 billion in product revenue from the earthquake, due to parts shortages which resulted in 150,000 fewer cars being made in the U.S.

To help mitigate these risks, we identified the Seven Costly Sins of leaders who underestimate the potential impact of natural disasters:

1) undervaluing the identification, assessment and mitigation of natural disaster impacts on the business;

2) making insufficient efforts to quantify supply chain exposures;

3) failing to insist that the board of directors and senior executives provide oversight on risk management;

4) seeing only the "statistical" risk, and not the real risk of whether a business is at peril;

5) relying on insurance alone to protect their business;

6) lacking a tested emergency response plan; and

7) not creating a culture of risk management.

These seven sins of omission provide a clear guide to CEOs seeking to re-evaluate how natural disasters impact their business resilience as companies continue to invest trillions of dollars in hazard-exposed regions. In the business world, as in the spiritual, prevention beats penance every time. Most property loss is preventable. LE

Shivan S. Subramaniam is chairman/CEO of FM Global, a $5.5 billion mutual business property insurer dedicated to property risk management.


This article was written by Shivan S Subramaniam from Leadership Excellence and was legally licensed through the NewsCred publisher network.