Suddenly everyone wants to talk to Gianluca Pescaroli.
dr Pescaroli is a global expert in risk management and specifically how businesses and other organizations can best plan for and manage the impact of a crisis.
Since the start of the Covid-19 pandemic, he has been a highly sought-after person. And now that the conflict in Ukraine is already hurting the world economy, his services are even more in demand.
“We live in a networked world,” says Dr. Pescaroli. “Every single company [in the West] will be affected in some way by Ukraine, not just companies doing business in Russia.”
dr Pescaroli, Lecturer in Business Continuity and Organizational Resilience at University College London’s Institute for Risk and Disaster Reduction, says the coronavirus has unfortunately shown that far too many companies didn’t have a plan B – they had no contingencies for how best to proceed would with such an event.
He adds that all companies must have such backup or disaster recovery plans in place. “You have to have a very, very clear vision of your critical processes and services,” he says.
“These are essential, whether it’s a pandemic, Ukraine or climate change. The better you prepare, the better you can adapt and respond.”
It’s not just Dr. Pescaroli, who is much busier these days, it has been a period of intense activity for the entire global risk management sector. A report last year said that while the industry was worth $7.4bn (£5.6bn) in 2019, it is expected to reach $28.9bn by 2027. And this number was calculated before the crisis in Ukraine unfolded in February.
With energy and food prices now soaring, companies in these sectors face very specific pricing and supply issues that they need to deal with. dr However, Pescaroli says all companies should make a list of practical things to check and check off in the event of a crisis and especially before a crisis.
“For example, do all your top managers still have a landline at home? Because if they don’t, and the next crisis is the collapse of the mobile network, then they don’t have a telephone.”
He explains that businesses also need to have backup generators to provide power when the grids go down. And they have to train more than one employee to operate them – in case he or she is on vacation when the power goes off.
Big companies that think ahead are now appointing board-level risk managers. This person is someone whose sole responsibility is to ensure the company can survive the next big crisis. They prepare for the worst and even run through different scenarios to see how the company would react.
One sector of the economy that has significantly increased its risk planning over the past decade is the banking industry. This heightened concern about the impact of future unforeseen events follows the 2008 global financial crisis.
At that time, banks had to be rescued by taxpayers in the billions. No wonder governments really want to make sure this never happens again.
One person UK banks need to impress most is a woman named Sarah Breeden. She is Executive Director of Financial Stability Strategy and Risk at the Bank of England and spends her time spying on bank bosses.
Ms Breedon is responsible for stress testing the country’s banks to ensure they can withstand shocks. Banks must demonstrate that they have sufficient reserves to continue providing financial services, no matter what scenario throws at them.
“The hope is [this testing] means that the next time they get shocked, they can rest assured that they have everything they need already in the can to get the job done,” says Ms Breedon.
If a bank fails one of these tests, the Bank of England may insist that it raise more money, improve risk management, or face tighter supervision. In the worst case, a bank could be banned from paying dividends to shareholders and bonuses to employees.
But Ms Breedon adds that there is far more to this testing process than just checking whether banks have enough cash in reserve. Some tests address technical issues and how best to deal with them, e.g. B. when payment systems go offline.
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However, this type of strict underwriting and government oversight does not happen in all parts of the economy. For example, no one is checking whether UK supermarkets could withstand a global wheat shortage, or how the auto industry would hope with the collapse of the internet.
dr Elizabeth Stephens helps organizations make critical risk management decisions. As the founder and director of Geopolitical Risk Advisory based in London, she and her colleagues advise companies on the dangers of doing business in specific countries and territories.
dr Stephens has spent a lot of time recently asking some tough questions to Western CEOs doing business in Russia.
“There are two things that companies like this need to consider,” she says. “First, are they breaking international sanctions? And second, the reputational risk of continuing to do business in Russia.
“If companies avoid the sanctions and can’t pull out of Russia, they risk ‘death’ in the court of public opinion. Risks you need to consider’.”
For companies without branches in Russia, Dr. Stephens that many are now spending a lot of time really understanding their supply chains. She adds that companies need to ask themselves “who supplies their suppliers?” and so on, because as she explains, “it takes 30,000 parts to build a car, but only one to not build a car”.
dr Pescaroli is currently discussing these types of issues at the United Nations, where he, along with Dr. Igor Linkov of the US Army Engineers Research and Development Center wrote a report for the UN Office on Disaster Risk Reduction.
“We look at stress tests and common sources of error,” says Dr. Pescaroli.
dr Pescaroli adds that thinking about how to deal with future risks shouldn’t be limited to governments and companies. Instead, it must also be taken into account by individuals and households.
To illustrate his point, he takes a small, wind-up radio from his office shelf. He bought it after discovering that in the event of a power outage across London, emergency communications are still by radio.
He realized that if you don’t have a radio that works without a plug, you don’t have a radio at all and you don’t know what’s going on. A simple example of what risk management is all about. And, dear reader, I went out and bought one too.
Additional reporting from Will Smale, editor of the New Economy series.
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