Irrespective of whether it results from traditional exposures such as a fire at a manufacturing plant, a natural catastrophe which impacts production or a break in the supply chain due to property damages at the premises of a supplier or customer (often known as contingent business interruption), business interruption can have a tremendous effect on a company’s revenues, even if the event occurred thousands of miles away. Potential loss of income can be one of the hardest risks to measure.
Businesses are facing an increasing number of disruptive scenarios as the nature of business interruption risk evolves in today’s globally connected economy. Many of these scenarios can occur without physical damage but with high financial losses. Breakdown of core IT systems, product recall or quality incidents, terrorism and political violence events or riots, environmental or pollution incidents or even regulatory changes can bring businesses to a temporary or prolonged standstill and have a devastating impact.
Business interruption risk can be reputational and always financial and therefore should be well-planned for. Companies can often underestimate the complexity of getting back to business but risks can be mitigated. A sound business continuity plan should be written and tested in a tabletop exercise to be effective. Ideally, the tabletop exercise should be prepared well in advance and designed to test location-specific vulnerabilities.