Transcript Business Impact Analysis

Business Continuity Management
Do you know the impact of business interruptions on your companies'
financial performance?
How to enhance your risk management function
by implementing BCM
Aon Global Risk Consulting – Alex van den Doel / Rubert Nieuwenhuis
VimpelCom – Ramon Tolk
DACT
8 November 2013
Why Business Continuity Management matters
Ship route Suez Canal essential for
international trade
DACT | AGRC & VimpelCom
Proprietary & Confidential | 8 November 2013
1
Stress Testing your continuity risks – approach
What (extreme) scenarios can
jeopardize your financial objectives?
Approach
• Define risk bearing capacity
• Develop scenarios
– Industry specific
– Organization specific
– Out-of-the-box
• Quantify impact of scenarios
• Evaluate against risk bearing capacity
DACT | AGRC & VimpelCom
Proprietary & Confidential | 8 November 2013
2
Stress Test – Risk Bearing Capacity
• Information from financial statements
– Balance sheet total: 880M
– Equity: 330M
39 %
– Solvency ratio = 38%
38 %
37 %
36 %
35 %
 Covenant in financing arrangement specifies a threshold of 34%
34 %
33 %
 Claim of 50M will lower ratio to 32%
 Breach of Covenant!
 An impact of 28M will lower the ratio to 34% → RBC = 28M
DACT | AGRC & VimpelCom
Proprietary & Confidential | 8 November 2013
32 %
31 %
Perception of business continuity risks
Source: Aon Global Risk Management Survey 2013 - 1.415 respondents representing a broad range of industry sectors in 70 countries (64% > 1B turnover)
DACT | AGRC & VimpelCom
Proprietary & Confidential | 8 November 2013
4
Impact on financial performance
• An average impact of 25% on
shareholder value and an impact which
commonly lasts for two years!
• Historically, supply chain disruptions can
lead to an average of 9 percent lower
sales and 11 percent higher costs!
• Both physical and non-physical events
drive supply chain disruptions, and 85%
of companies reported disruptions in
2011 (study of BCI in 2011)
• Other recent examples:
Source: Vinod Singhal, Professor at Georgia Institute of Technology, and Professor Kevin Hendricks, Richard Ivey School of Business, The
University of Western Ontario, London, Ontario N6A-3K7, Canada
Company
Event
TEPCO
Japan EQ
-89.6%
- $ 37bln
Dexia
Greek debt
-87.3%
- $ 3.9 bln
Research in Motion
Service Disruption
-49.7%
- $ 6 bln
BP
Explosion / Oil spill
-29%
- $ 53 bln
Apple
Iphone Antenna
-2.4%
- $ 6 bln
DACT | AGRC & VimpelCom
Proprietary & Confidential | 8 November 2013
Value
Reaction
5
Objectives
• Protecting your financial performance from the impact of business interruption risks
• Understanding methods and techniques to map supply chain interruption risks and quantify the
financial impact on revenue generating activities
• Enhancing Enterprise Risk Management by implementing Business Continuity Management and
focus on high impact exposures
• Evolving the Risk & Insurance function towards a more mature operational risk management
function
DACT | AGRC & VimpelCom
Proprietary & Confidential | 8 November 2013
6
Agenda
• Analyzing the impact of business interruption exposures on financial performance
• Business Continuity Management - Execution
– Link BCM – ERM
– Buiness Continuity Management Process
– Quantifying financial impact
• Business Continuity Management – In Practice
– Case study VimpelCom – Peter den Dekker
• Questions
DACT | AGRC & VimpelCom
Proprietary & Confidential | 8 November 2013
7
What is BCM
"BCM is the ongoing process of
identifying continuity threatening risks
and defines a program for mitigating those risks
and recovering as soon as possible
within predefined time objectives".
Structured programme
and process
DACT | AGRC & VimpelCom
Proprietary & Confidential | 8 November 2013
8
How does BCM link ERM?
BCM is the key mitigation for
continuity risks
BCM is becoming more and
more a strategic topic!!
DACT | AGRC & VimpelCom
Proprietary & Confidential | 8 November 2013
9
BCM Process
Analysis
- Conduct business
impact analysis
- Conduct threat
analysis
- Conduct requirement
analysis
DACT | AGRC & VimpelCom
Proprietary & Confidential | 8 November 2013
Design
- Define continuity
strategy
• Strategic
• Tactical
• Operational
Implementation
- Implement response
organization
- Implement response
plans
Validation
- Maintain
- Review
- Exercise
10
Quantifying financial impact - Business Impact Analysis (BIA)
• BIA provides a very structured and efficient approach to:
– Identify and quantify business interruption risks
– Map complex and global supply chains
– Measure the value of current mitigation measures
• BIA enables organizations to consolidate the BI
exposure from unit level to every consolidated level
(country, regional, global, etc.)
• The BIA provides a solid basis for risk management improvement:
– Clear picture of the biggest interruption risks, accumulation effects and critical
issues
– Focused development of risk management strategies (loss prevention and
response)
– Optimization insurance cover and limits
– Enhancing business interruption risk awareness and understanding
DACT | AGRC & VimpelCom
Proprietary & Confidential | 8 November 2013
Step 2: Example of results of quantification unit level
Supply chain analysis
DACT | AGRC & VimpelCom
Proprietary & Confidential | 8 November 2013
Site analysis
Dataroom analysis
Step 2: Quantifying consolidated level
Delivering two key elements:
• Dependencies network
– Based on unit level outcome defining and modeling material
dependencies between suppliers, own units and customers
– Making use of a "engine" to simulate impact
• Consolidated risk profile on selected level
– Calculating the impact of unit level events though
dependency network
– Creating consolidated loss exposure profile on selected level
DACT | AGRC & VimpelCom
Proprietary & Confidential | 8 November 2013