All of a sudden, everyone wants to talk to Gianluca Pescaroli.
Dr Pescaroli is a global expert in risk management, and more specifically – in how businesses and other organisations can best plan for, and cope with, the impact of a crisis.
Since the start of the Covid-19 pandemic, he has been a person very much in demand. And now with the conflict in Ukraine already damaging the world economy, his services are even more sought after.
“We live in an interconnected world,” says Dr Pescaroli. “Every single company [in the West] is going to be affected by Ukraine in some way, not just firms that do business in Russia.”
A lecturer in business continuity and organisational resilience at University College London’s Institute for Risk and Disaster Reduction, Dr Pescaroli says coronavirus sadly revealed that far too many firms didn’t have a plan B – they had no contingency in place for how they would best deal with such an event.
He adds that all firms need to have such back-up, or disaster recovery plans in place. “You need to have a very, very clear idea of your critical processes and services,” he says.
“These are essential, independent of whether it is a pandemic, or Ukraine, or climate change. The better you prepare, the better you adapt and react.”
It is not just Dr Pescaroli who is a lot busier these days, it has been a period of intense activity for the entire global risk management sector. One report last year said that while the industry was worth $7.4bn (£5.6bn) in 2019, it is projected to reach $28.9bn by 2027. And that figure was calculated before the crisis unfolded in Ukraine in February.
With energy and food prices now soaring, firms in those sectors face very specific pricing and supply issues that they need to be able to deal with. However, Dr Pescaroli says all companies should prepare a list of practical things to check and tick off in the event of a crisis, and more importantly – before one.
“For instance, 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 phone network, then they don’t have any phones.”
He explains that firms also need to have back-up generators to supply power if networks go down. And they need to train more than one member of staff to be able to run them – in case he or she is away on leave, if the mains power supply is cut.
Large companies that are thinking ahead are now appointing risk managers at board level. This person will be someone whose sole responsibility is to ensure the firm can survive the next major crisis. They are preparing for the worst, and even gaming different scenarios to see how the company would respond.
One sector of the economy that has substantially increased its risk planning over the past decade or so is the banking industry. This elevated concern about the impact of future unforeseen events follows the 2008 global financial crisis.
Back then, banks had to be bailed out by taxpayers, to the tune of billions of pounds. Hardly surprising then, that governments really want to make sure that will never happen again.
One person the UK banks need to impress above all others, is a woman called Sarah Breeden. She is the executive director of financial stability strategy and risk at the Bank of England, and she spends her time grilling bank bosses.
Ms Breedon is in charge of stress testing the country’s banks to make sure they can withstand shocks. The banks must prove they have enough reserves to continue providing financial services whatever scenario she throws at them.
“The hope is [this testing] means that when the next shock happens they are confident they have what they need in the tin already, so they can do their job,” says Ms Breedon.
If a bank fails one of these tests, then the Bank of England can insist it raises more money, improves its risk management, or faces tighter supervision. In the worst case scenario, a bank could be banned from paying dividends to shareholders and bonuses to staff.
However, this type of stringent risk testing and state supervision doesn’t happen in every part of the economy. For example, there is no one checking that the UK’s supermarkets could withstand a global wheat shortage, or how the car industry would hope with the collapse of the internet.
Dr Elizabeth Stephens helps businesses make key risk management decisions. Founder and head of London-based, Geopolitical Risk Advisory, she and her colleagues advise companies on the dangers of doing business in particular countries and territories.
Dr Stephens has recently spent a lot of time asking Western company bosses who have been doing business in Russia some difficult questions.
“There are two issues for such firms to consider,” she says. “Firstly, are they breaking the international sanctions? And secondly, the reputational risk of continuing to do business in Russia.
“If firms can avoid the sanctions and not pull out of Russia, then they risk ‘death’ in the court of public opinion. We never say to companies ‘do this, don’t do that’, rather we say ‘these are the risks that you need to consider’.”
For companies without operations in Russia, Dr Stephens says she now sees many spending serious amounts of time trying to really understand their supply chains. She adds that businesses need to ask themselves “who supplies their suppliers?”, and so on, because as she explains, “it takes 30,000 parts to make a car, but only one not to make a car”.
Dr Pescaroli is now discussing these kinds of issues at the United Nations, where he is co-writing a report for the UN Office for Disaster Risk Reduction with Dr Igor Linkov of the US Army Engineer Research and Development Center.
“We are looking at stress testing and common points of failure,” says Dr Pescaroli.
Dr Pescaroli adds, that thinking about how to deal with future risks should not be something limited to governments and businesses. Instead, it needs to be something considered by individuals and households too.
To illustrate his point he takes a small, wind-up radio off his office shelf. He bought it after discovering that in the case of a London-wide power failure, emergency communication is still done by radio.
He realised that if you don’t have a radio that can operate without a plug, you don’t have a radio at all, and won’t know what is going on. So, a simple example of what managing risk is all about. And dear reader, I then went out and bought one too.
Courtesy-https://www.bbc.com/news/business-60660760