Mitigating the risks of business interruption

A few years ago, one of the world’s largest restaurant chains ran out of chicken in the UK. The shock led to the temporary closure of over 500 outlets. More recently, the deplorable invasion of Ukraine by Russia led to an energy crisis and massive supply chain disruption.

Supply chain failures and other disruptions, such as a cyber-attack, flood or fire can cause financial shocks and even lead to business failure. Careful planning can help protect businesses of all sizes from the risks of business interruption.

In 2018, fast food chain KFC switched distribution partners in the UK. The change did not go smoothly and massively disrupted the delivery of fresh chicken to its restaurants, resulting in the closure of over 500 outlets. KFC was big enough to survive, but business interruption on this scale could easily kill off weaker companies.

Preparing for the unexpected will make your business more resilient. What would happen, for example, if you could not access your workplace following a flood or fire? How would you survive the failure of a critical supplier? Cyber-attacks, data loss and ransomware attacks affecting business-critical operations, are sadly becoming far more common and can also lead to serious disruption.

The Covid pandemic and war in Ukraine show just how quickly the unexpected can affect businesses. The risk is your company will not be able to operate partially or fully. Revenue will reduce or even cease but costs continue, leading rapidly to a cash crisis and business failure. Of course, we cannot predict what is going to happen in the future, but preparing a detailed business recovery plan can help your business survive.

Consider all the risks that could affect your company and rank them in order of likelihood. Put in place a plan to mitigate each risk and make a named manager responsible for each area. This should include robust cyber security measures and steps to protect against the risk of fire or flood, such as alarms and flood gates. Could you operate from alternate premises and how quickly could your staff be relocated? 

As we saw during the Covid crisis and now during the Ukraine war, supply chain issues can be highly disruptive. Assess the risks to your business and identify back-up suppliers wherever possible.

Of course, preparing a business recovery plan is only part of the solution. Make sure you can implement the plan by undertaking regular staff training on critical issues and by running trial sessions on specific scenarios.

It is impossible to plan for absolutely every eventuality, which is where business interruption and cyber liability insurance comes into play. These policies provide your business with the financial resources to see you through the shock, and many include access to industry experts who have experience in resolving crises.

Being fully prepared for the unexpected will make your business more resilient, and the forethought may even help to reduce the risk of issues occurring in the first place. If you would like to learn more about this topic and understand the implications for your firm, please don’t hesitate to contact the team.