Business ContinuityPART III

A Pandemic is a A Pandemic is a business issue, as well business issue, as well

as a health issueas a health issue

Billio

ns

$50

$40

$30

$20

$10

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Bio Economic Research Associates, November 2005Figures are estimates and are presented in relative size

Economic Impact of Selected Infectious Diseases

Avian Flu, Asia

$10-15 bn

Avian Flu, Asia

$10-15 bn

SARSChina, Hong KongSingapore, Canada

$30-50 bn

Foot & MouthUK $20-30 bnFoot & MouthUK $20-30 bn

BSE UK$10-13 bn

BSE UK$10-13 bnFoot & Mouth

Taiwan, $5-8 bnFoot & Mouth

Taiwan, $5-8 bn BSE, US$3.5 bnBSE, US$3.5 bn

BSE, Japan $1.5 bn

BSE, Japan $1.5 bn

BSE, Nipah, Malaysia

$150 – 400 m

BSE, Nipah, Malaysia

$150 – 400 m BSE, Canada $1.5 bn

BSE, Canada $1.5 bn

Avian Flu, NL

$500 m

Avian Flu, NL

$500 m

Foot & Mouth Brazil, $1 bn Foot & Mouth Brazil, $1 bn HPAI, Italy

$400 mHPAI, Italy

$400 mClassical Swine FeverNetherlands. $2.3 bn

Classical Swine FeverNetherlands. $2.3 bn

When, and if, a pandemic does occur, there will be two distinct events; a social event and an economic event.

Organizations must be prepared to manage both.

Pandemics – The Economic and Social Events

Social Event (behavioral or human element of the event) – the social event directly relates to the health, safety, security, and well-being of employees, customers and business partners. Understanding how to manage the social impacts of this threat is critical and is typically the primary consideration when evaluating the threat of a pandemic.

Social Concerns

– Health and safety of employees

– Human interactions/communications during the event

– Employee isolation

Pandemics – The Economic and Social Events (cont’d)

Economic Event (how to keep the business going) – this event is equally important and is generally overlooked in most plans. The economic impact of a pandemic (i.e., the financial implications associated with the disruption of operations, loss of key vendors or diminished customer demand) can be extremely severe and directly linked to the organization’s ability to recover from the event and resume normal operations.

Economic Concerns

– Employee support and recovery

– Loss of vendors/suppliers

– Diminished customer demand

What Will be the Impact from Economic & Social Events?

Social Event

– 7 million–350 million deaths (World Health Organization-WHO)

– 11,000–58,000 deaths in Canada (Public Health Agency of Canada – PHAC)

– 25+ percent of workers sick 5 to 20 days (UK Department of Health)

– 2-4 day incubation period (time interval between infection and onset of first symptom), 3-21 day contagious period

– Infections will come in 6-8 week waves

– Concern about potential infrastructure impacts

Economic Event

– $800 billion in worldwide economic damages (The World Bank)

– Major disruptions to every business, particularly lodging, health care, travel. Major imbalances in both demand and supply

– Macro impacts on regional and global economies that would reduce annual GDP by 2% and 6%.

– Expected 30 - 40% absenteeism of key personnel drastically impacting production and sales

Who owns the risk Who owns the risk and the responsibility?and the responsibility?

Social and Economic Events

It is viewed as an Enterprise Risk and must be managed

BUT

It is viewed as an Enterprise Risk and must be managed

BUT

Increases in visibility and relevance are shifting the discussion to more senior audiences

Increases in visibility and relevance are shifting the discussion to more senior audiences

The Value of Preparedness

It reduces the negative

impact and…

PandemicPandemic

IMPACTIMPACT

Without preparedness

Damage tofinancial results, reputation and

key relationships

Lost Time/Productivity

Time

Negati

ve im

pact

With With preparednesspreparedness

… speeds recovery from all kinds of corporate crises

The Impact on Shareholder Value

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ve A

bn

orm

al R

etu

rns

(%)

i. e.,

chan

ge in

mar

ket c

ap a

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for m

arke

t mov

emen

t

Source: “The Impact of Catastrophes on Shareholder Value,” Rory F. Knight & Deborah J. Pretty, Templeton College, University of Oxford, p. 3.

Trading Days After the Event

25 50 75 100 125 150 175 200 225250

Effective Crisis Response

Ineffective Crisis Responses

After initial reflex (10 days),market begins to assesscompany’s response.

A Pandemic Will Be A Test of Leadership

The ability to managea crisis is a vital new standard of good Corporate Governance because it has:

– Major immediate impacton shareholder value

– Long-term impact on reputation/brand and therefore market share

– Developing recognition of impact on credit rating

Why Pandemic Planning Why Pandemic Planning is Important –is Important –

Business Continuity Planning Business Continuity Planning vs Pandemic Planningvs Pandemic Planning

What is Business Continuity Planning?

BCP – Business Continuity Planning

– The identification and protection of business processes required to maintain an acceptable level of operations in the event of sudden, unexpected, or not so unexpected, interruption of these processes and their supporting resourcesi.e., keeping the critical business running – no matter what

Typical Timeline for a Critical Event

Det

ecti

on

Rec

ove

ry

Business Continuity/IT Plans

Crisis Management

Emergency Response

Minutes Hours Weeks

Dis

rup

tio

n

Prolonged Recovery

Pan-demic Alert

PrePandemic

On-set

Maximum Disruption

Initial Panic

Second Wave ?

Weeks/Months

A Pandemic Timeline Might Look Very Different Than a Normal Business Disruption…

The world is currently experiencing WHO Phase 6 for H1N1

WHO Phases address spread – Businesses are more concerned with severity or impact

Guidance required on “impact” criteria – absenteeism, lost sales, etc.

World Health Organization Pandemic Phases – 1- 6

WHO Phase

3Notification and decision making

Risk reduction techniques and contingency supplies

Facility antiviral medication and distribution procedures

Business unit procedures and contingency

Response to Corporate direction

4Internal and external communications

Human resources emergency management

Facility perimeter and internal physical security

5Coordination with public authorities

Facility hygiene, cleaning, infection control

6

HR / Health & Safety

Coordinators

HR / Health & Safety

Coordinators

BusinessContinuity

Coordinators

BusinessContinuity

CoordinatorsCorporateExecutives

CorporateExecutives

IncidentManagement

IncidentManagement

FacilitiesCoordinators

FacilitiesCoordinators

OperatingExecutives

OperatingExecutives

Facility and Business Unit Response – Severity Based LocallyFacility and Business Unit Response – Severity Based Locally

Decision Making and Central Support – Spread and ImpactDecision Making and Central Support – Spread and Impact

Organizational Responses Must Be Commensurate With the WHO Phase and Local Impact / Severity

Business Continuity Planning is Not Pandemic Planning…

It Requires a Change to the Scope of Planning Assumptions.

Scope must be expanded when planning for a pandemic scenario for several reasons:

– The vulnerabilities of the demand/supply chain extend far beyond the organization and region, and many critical competencies and capabilities may have been outsourced and/or off-shored. The organization’s threat/vulnerability profile now has to encompass the global demand/supply chain, not just elements under their control.

– A pandemic should be considered a catastrophic versus a disruptive and manageable event. The extent of affected business processes and time to resume normal operations will be much greater than a “normal” event. Under a pandemic scenario, duration of the catastrophe must be considered in planning efforts.

Business Continuity Planning is Not Pandemic Planning…

(cont’d)

– A pandemic requires the scope of continuity activities to extend beyond immediate recovery (e.g., first 72 hrs). Recovery, restoration and resumption all need to be considered. The impact of a pandemic will have a longer-than-usual duration, and will come in multiple waves. Plans need to address this unique issue, impacts need to be measured and analyzed, and the decision model for resource allocation needs to be more refined.

Valuation (Factors to Consider)Quantitative Factors:

• Revenue value• Asset value• Cash flow value

Qualitative Factors:• Brand Image• Compliance• Market Strategy

All brands contributing value to the organization (and all associated internal & external support resources)

Based on the value assessment, management establishes priorities based upon which to allocate time, management attention, resources, and capital

All Brands/Services

Business PrioritiesContribution to overall value of the organization

ValueFilter

Illustrative

Product X Product Y

Organizations Will Prioritize Products and Services Resulting in Prioritized Customers / Employees

Which Value Streams Are Most Critical?

The Impacts of a Pandemic Will Extend Far Beyond the Organization

Planning Consideration – The scope and assumptions used to conduct Business Continuity planning activities should be expanded to include:

– Loss or degradation of critical infrastructure such as transportation, energy, communications, and public health/safety

– Socially disruptive events such as increased deaths, isolation, social distancing, and civil unrest

– Three orders of succession and delegation for all key employees:• Community-survival activities (i.e., first-responder mentality) for at least 72

hours sometime during an outbreak – activities that require cooperation between local public and private sector entities

• Behavioral challenges – people will become incoherent, irrational, difficult to motivate, isolated, and defensive

• Limited medical supplies and trained personnel – increased expectation on employer

Major Drivers of Non-Continuity Considerations

Financial / Litigation Exposure of Business Continuity Failure

– Contractual time/supply obligations

– Failure to meet industry standard of care / duty to care for employees

HR / Employee Welfare Concerns

– Union representation / lobbying

– Healthcare costs if health risks are retained internally

– Cost to recruit / re-train lost workers

Competitive Issues

– Competitive advantage to maintaining operations in a pandemic

– Danger of falling behind competitors

Social / Brand Image Issues

– Brand issues where trust / reliability are attributes, but not contractually required (e.g. hotels – need to care for guests in pandemic, colleges – foreign students, etc)

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