Business continuity management rising up enterprise risk management agenda

Ms Chew recalled a paper published in 2008 by the UK’s Chartered Management Institute, which found that some 76% of survey respondents reported that business continuity management was seen as important in their organisations. But shockingly, only less than half revealed they have specific business continuity plans. Ms Chew said a major reason for this disconnect is the lack of metrics to measure success in the absence of a major institutional crisis, a conundrum that corporate risk and insurance managers who are not appreciated when all goes well but pilloried when it all goes wrong know only too well. “One commentator put it this way – the return on investment is simply that business stays open,” said Ms Chew. The regulator used contrasting examples of business continuity management to help underscore this point. She said that investigations by the Japanese government into the Fukushima tsunami disaster revealed material inadequacies in the handling of complex risks associated with the management of a nuclear power plant. She said this was demonstrated in poorly executed emergency procedures in the evacuation of residents during the incident. As a result, the operations of the power plant were suspended.hide“In contrast, during the 9/11 attacks on the World Trade Centre, a sustained commitment by a large multinational financial service provider to strengthen its business continuity management and continuously improve its evacuation procedures over almost a decade, enabled it to reduce the time taken to evacuate its employees from four hours to 45 minutes, saving thousands of lives,” pointed out Ms Chew. Perhaps unsurprisingly, one key focus of reforms since the global financial crisis has been on the development of recovery plans that aim to protect the continuity of critical functions and core business lines in a situation of financial stress, said Ms Chew. Malaysian financial institutions are now expected to develop a menu of options to help them recover from severe stress events and restore business to a stable condition. Ms Chew explained that these plans must be regularly updated to reflect changes in a firm’s business model and operational arrangements. “At its most basic level, recovery plans are helping financial institutions to better understand their operational and financial interdependencies and how this can affect recovery options that are available to the institution,” said the deputy governor. “Some institutions are finding through this process that their operations have become far too complex to support credible recovery strategies. These institutions are taking or considering steps to restructure parts of the business to achieve wider options for recovery,” she continued. One important development to emerge in recent times has been the more “explicit consideration” of implications for recovery plans in key strategic decisions, such as decisions to hub operations at a particular location or service provider, pointed out Ms Chew. But the Bank Negara assistant governor warned that it is important for businesses to appreciate the “inherent limitations” of business continuity plans and not be lulled into a “false sense of confidence” that these plans may provide. “Scenarios featured in these plans are often based on assumptions, which are a simplification of reality at best. Such scenarios should always be rigorously challenged to account for changing conditions. Business recovery or resumption actions should also contemplate a range of conditions to build agility within the organisation to execute required, but potentially untested, responses,” stressed Ms Chew. This does not mean that business continuity management is necessarily reduced to an exercise in futility. A commitment to continuous improvements in business continuity management is “almost certainly” likely to better prepare firms for disasters and tail-risk events even if those specific events were not contemplated, she said. “This is because the organisation will be naturally better at coming together in a crisis and would be able to leverage on some of the core elements of response plans that have already been developed and tested,” explained Ms Chew. “The world today is encountering more extreme disasters such as epidemics and unpredictable weather-related calamities. In our own country, the worst flood disaster experienced in decades last year saw more than 250,000 people displaced with estimated costs of more than RM 2 billion to repair damaged infrastructure,” said Ms Chew. “This presents a sober reminder of the responsibility of all corporations to ensure that they are well prepared for and remain resilient against calamities, not just for their own survival, but in the interest of employees and the community that depend on them,” she concluded.

Business continuity management rising up enterprise risk management agenda

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