It is important for business executives to understand the impact a pandemic will have on their business . The focus of any discussion with senior executives should be to connect the medical issue to the impact absenteeism will have on their business results.
Many companies were directly affected by SARS and assume it was a medical crisis. Many business executives were unaware of the financial costs to companies that were affected. The fact that some companies have not been directly impacted by a medical crisis yet suggests that they should assess the potential costs when before they are affected. Most Executives are unaware of the magnitude of the impact – often because they don‘t factor in ALL of the costs.
We recognize that our employees have a personal life, as well as a work life. We should also recognize that the employees’ reaction to a pandemic will impact both elements dimensions? . Pandemic Preparedness programs should recognize and support this dichotomy. Just as it is unlikely for enlightened management to ignore the non-business expectations of employees, it is unlikely that they will dispute the potential behavioural impact of a pandemic on their employees. In fact, it is the support of their health and welfare that is the usual first response to the topic of a pandemic. However, it often doesn’t recognize the extent of the social impact nor does it include a recognition that the social considerations will often “trump” the business ones.
Most organizations have never had to manage through a high absenteeism event that affects their company, their customers, and their vendors. Many will be able to quantify or estimate the cost of a strike but won’t be able to identify all of the financial implications of a pandemic. Without a precedent to provide guidance, they may have difficulty imagining how financially distressing a pandemic may be. While most Executives can assign a direct labour cost to an employee, few can assign a “value” and even fewer can appreciate the compounding “cost” of the loss of many employees – even for a relatively short duration.
This slide provides some statistics and facts about the potential impact at a very high level. While the numbers may be staggering and difficult to imagine, the key is to try and estimate or quantify what the social and legal impacts will be at an individual organization level.
Recent media stories have raised the visibility of the current H1N1 pandemic and most Executives realize that it is a risk to the entire organization but they may not yet understand their role in addressing it. This is a good time to review the role of the individual employee, the public health system, the Occupational Health Physician, and the organization’s management.
There are many benefits to Business Continuity Preparedness ahead of a major crisis event such as an influenza pandemic. Most importantly, preparedness helps organizations maintain business operations and recover more quickly during a critical event. The two factors that are directly addressed through being prepared are 1) the extent of the impact and 2) the time to return to near normalcy. Both of these are of great interest to Executives.
This chart represents the results of a study that was conducted by Knight and Pretty from Oxford. They reviewed several crises that affected publicly traded companies and rated the response by the organization as effective or ineffective. For example the “Tylenol scare” was rated effective and the “Exxon Valdez” was rated ineffective. The stock price of these companies was then tracked for one year and the results consolidated. The graph shows that both effective and ineffective responses resulted in a short term drop in stock price. However, the stock prices of those companies that had an effective response returned to pre-crisis values faster and after one year, on average, were 7% higher than immediately before the event. The stock prices of those companies without an effective response were, on average, 15% lower than immediately before the crisis. A couple of cautions. The statistical sample is small, the determination of effectiveness was subjective, and the study only included publicly traded companies. There could also be an argument that any company without a proper response capability may have poorer quality management and would have suffered a stock price decline anyway. Not an outstanding scientific study but one of the few that tries to correlate crisis response to company valuation.
It is possible that some Executives assume that Business Continuity Planning is aimed at operational crises only and does not need to include reputational or pandemic crises. This slide is intended to reiterate that Business Continuity Planning (the organization’s responsibility) does need to address any event that could prevent continued operations, including a pandemic. In other words, it is not acceptable to exclude pandemic preparedness planning by assuming it is a health authority issue.
In a “normal” critical event there are three distinct phases. First is the emergency response phase. This involves the immediate actions necessary to protect life and minimize damage. It would include, evacuations, fire suppression, police response, etc. The second phase involves the process of managing the crisis. The objectives are usually containment and resolution. Once the situation is under control and has stopped worsening, the focus becomes one of moving to resolution as quickly as possible. This may involve the invocation of the third phase – business continuity plans, information technology recovery plans, or other response plans designed to return the organization to pre-event capabilities. Most planning that has been done in this area assumes that the event will be sudden and unexpected, that it will occur (and be contained) in a few hours, and that the recovery effort will occur over a relatively short period of time – hours to weeks. Most plans also assume that there are qualified personnel available to implement the plans.
However in a pandemic crisis, the time line is different and includes the following phases: Pandemic Alert – governments are put on notice that a pandemic is possible and that preparedness plans should be reviewed and updated where necessary. At this stage individual firms become increasingly aware of the threats and should consider the potential negative impacts of such an event. Pre-Pandemic – localized outbreaks of the disease occur with human-to-human transmission. Government (and firms) begin to assign specific resources to address the heightened threat level and prepare contingency communications for the general public and staff. Pandemic Outbreak – general outbreaks of the disease with human-to-human transmission across borders. At this stage, governments (and firms) would activate pre-planned measures, such as border and travel restrictions, to minimize the spread of the disease. And key emergency staff would be provided with anti-viral drugs and any general vaccines that are available. Maximum Disruption Period – after a hopefully short period of panic, the reality of the pandemic will hit home as the virus spreads, and as each country and region is affected. Outbreaks and accompanying minor panics will occur simultaneously and unpredictably across the world. It is in this phase, that maximum disruption to business will occur and, as the timeline shows, disruption could last for several months, depending on the virulence of the virus. Prolonged Recovery – recovery from a pandemic will be slow. The inevitable slowdown to the underlying economy will lag the disease’s onset by several months as the pandemic impacts various industrial sectors at different times. Individual firms will have to adapt to the reality of altered business conditions and must do so while clearing unavoidable backlogs. In practice, some firms may never return to pre-pandemic normality but settle for a long period of decreased activity.
This slide illustrates standard representation of the WHO Phase with an acknowledgement that we are currently at the highest level and that there are other phases remaining. It is important to note that the pandemic will not suddenly revert from Phase 6 to Normal, and that companies need to plan for the post-peak and post-pandemic phases as well.
Just as the WHO has developed “phases” to reflect the differences as a pandemic develops, so must organizations develop their response to be aligned with the situation as it evolves. This chart shows the typical stakeholders’ response in a pandemic and some representative actions they would take at the various WHO phases. However, it is very important to recognize that actions should not be STRICTLY based on WHO criteria but should always incorporate an assessment of severity or impact at a local/location level. This slide also demonstrates indicates? the general roles and responsibilities. The two key messages are: actions/responses must be aligned with both WHO phases and local severity criteria, and a clear understanding of the roles and responsibilities for all potential stakeholders must be developed.
The next two slides summarize the differences between a “normal” crisis and a pandemic. The three primary differences are: it will extend beyond your control the impact is probably greater than many other critical events, and …
… 3) it will require management and response activities for a relatively long period of time.
Business Executives recognize the relative value of their various products, services, or lines of business to the organization. They appreciate that not all products/services should be treated EQUALLY from a pandemic response investment perspective. They should, however, make EQUITABLE investment decisions. This requires an analysis of relative value based on the organization’s priorities. In many cases, this assessment has been conducted formally and, if not, has certainly been thought of considered? . This is an effective way to move the Executive from a binary decision of spending whatever it takes or spending nothing. It is important that they recognize it is a continuum because if it is binary, they will likely spend nothing. It also is important to demonstrate that there is a process to developing a business case for the most cost-effective program and moves the perception from one of “this is a medical issue” to “this is medical issue that must be addressed in business terms”.
As part of the review of planning assumptions, there needs to be a discussion of assumptions on a much broader scale. Most existing business continuity plans do not state any assumptions about social impacts in local and foreign locations. These should be considered in a pandemic scenario.
As mentioned earlier, there will be some organizations that recognize there may be considerations of a non-financial or strict continuity nature that “trumps” others. This slide provides some potential areas that may override the more traditional business-case factors.
Business Continuity PART III
A Pandemic is a business issue, as well as a health issue
Economic Impact of Selected Infectious Diseases Bio Economic Research Associates, November 2005 Figures are estimates and are presented in relative size Billions $50 $40 $30 $20 $10 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Avian Flu, Asia $10-15 bn SARS China, Hong Kong Singapore, Canada $30-50 bn Foot & Mouth UK $20-30 bn BSE UK $10-13 bn Foot & Mouth Taiwan, $5-8 bn BSE, US $3.5 bn BSE, Japan $1.5 bn BSE, Nipah, Malaysia $150 – 400 m BSE, Canada $1.5 bn Avian Flu, NL $500 m Foot & Mouth Brazil, $1 bn HPAI, Italy $400 m Classical Swine Fever Netherlands. $2.3 bn
Social Event (behavioral or human element of the event) – the social event directly relates to the health, safety, security, and well-being of employees, customers and business partners. Understanding how to manage the social impacts of this threat is critical and is typically the primary consideration when evaluating the threat of a pandemic.
Health and safety of employees
Human interactions/communications during the event
When, and if, a pandemic does occur, there will be two distinct events; a social event and an economic event. Organizations must be prepared to manage both.
Pandemics – The Economic and Social Events (cont’d)
Economic Event (how to keep the business going) – this event is equally important and is generally overlooked in most plans. The economic impact of a pandemic (i.e., the financial implications associated with the disruption of operations, loss of key vendors or diminished customer demand) can be extremely severe and directly linked to the organization’s ability to recover from the event and resume normal operations.
Employee support and recovery
Loss of vendors/suppliers
Diminished customer demand
What Will be the Impact from Economic & Social Events?
7 million–350 million deaths (World Health Organization-WHO)
11,000–58,000 deaths in Canada (Public Health Agency of Canada – PHAC)
25+ percent of workers sick 5 to 20 days (UK Department of Health)
2-4 day incubation period (time interval between infection and onset of first symptom), 3-21 day contagious period
Infections will come in 6-8 week waves
Concern about potential infrastructure impacts
$800 billion in worldwide economic damages (The World Bank)
Major disruptions to every business, particularly lodging, health care, travel. Major imbalances in both demand and supply
Macro impacts on regional and global economies that would reduce annual GDP by 2% and 6%.
Expected 30 - 40% absenteeism of key personnel drastically impacting production and sales
Social and Economic Events Who owns the risk and the responsibility? It is viewed as an Enterprise Risk and must be managed BUT Increases in visibility and relevance are shifting the discussion to more senior audiences
The Value of Preparedness It reduces the negative impact and… Pandemic IMPACT Without preparedness Damage to financial results, reputation and key relationships Lost Time/Productivity Time Negative impact With preparedness … speeds recovery from all kinds of corporate crises
The ability to manage a crisis is a vital new standard of good Corporate Governance because it has:
Major immediate impact on shareholder value
Long-term impact on reputation/brand and therefore market share
Developing recognition of impact on credit rating
The Impact on Shareholder Value Cumulative Abnormal Returns (%) i.e., change in market cap adjusted for market movement Source: “The Impact of Catastrophes on Shareholder Value,” Rory F. Knight & Deborah J. Pretty, Templeton College, University of Oxford, p. 3. Trading Days After the Event 25 50 75 100 125 150 175 200 225 250 Effective Crisis Response Ineffective Crisis Responses After initial reflex (10 days), market begins to assess company’s response.
Why Pandemic Planning is Important – Business Continuity Planning vs Pandemic Planning
The identification and protection of business processes required to maintain an acceptable level of operations in the event of sudden, unexpected, or not so unexpected , interruption of these processes and their supporting resources i.e., keeping the critical business running – no matter what
Typical Timeline for a Critical Event Detection Recovery Business Continuity/IT Plans Crisis Management Emergency Response Minutes Hours Weeks
A Pandemic Timeline Might Look Very Different Than a Normal Business Disruption… Disruption Prolonged Recovery Pan-demic Alert Pre Pandemic On-set Maximum Disruption Initial Panic Second Wave ? Weeks/Months
The world is currently experiencing WHO Phase 6 for H1N1
WHO Phases address spread – Businesses are more concerned with severity or impact
Guidance required on “impact” criteria – absenteeism, lost sales, etc.
World Health Organization Pandemic Phases – 1- 6
Organizational Responses Must Be Commensurate With the WHO Phase and Local Impact / Severity Facility and Business Unit Response – Severity Based Locally Decision Making and Central Support – Spread and Impact WHO Phase 3 Notification and decision making Risk reduction techniques and contingency supplies Facility antiviral medication and distribution procedures Business unit procedures and contingency Response to Corporate direction 4 Internal and external communications Human resources emergency management Facility perimeter and internal physical security 5 Coordination with public authorities Facility hygiene, cleaning, infection control 6 HR / Health & Safety Coordinators Business Continuity Coordinators Corporate Executives Incident Management Facilities Coordinators Operating Executives
Business Continuity Planning is Not Pandemic Planning…
It Requires a Change to the Scope of Planning Assumptions .
Scope must be expanded when planning for a pandemic scenario for several reasons:
The vulnerabilities of the demand/supply chain extend far beyond the organization and region, and many critical competencies and capabilities may have been outsourced and/or off-shored. The organization’s threat/vulnerability profile now has to encompass the global demand/supply chain, not just elements under their control.
A pandemic should be considered a catastrophic versus a disruptive and manageable event. The extent of affected business processes and time to resume normal operations will be much greater than a “normal” event. Under a pandemic scenario, duration of the catastrophe must be considered in planning efforts.
Business Continuity Planning is Not Pandemic Planning…
A pandemic requires the scope of continuity activities to extend beyond immediate recovery (e.g., first 72 hrs). Recovery, restoration and resumption all need to be considered. The impact of a pandemic will have a longer-than-usual duration, and will come in multiple waves. Plans need to address this unique issue, impacts need to be measured and analyzed, and the decision model for resource allocation needs to be more refined.
Organizations Will Prioritize Products and Services Resulting in Prioritized Customers / Employees
Which Value Streams Are Most Critical?
Valuation (Factors to Consider)
Cash flow value
All brands contributing value to the organization (and all associated internal & external support resources) Based on the value assessment, management establishes priorities based upon which to allocate time, management attention, resources, and capital All Brands/ Services Business Priorities Contribution to overall value of the organization Illustrative Product X Product Y Value Filter
The Impacts of a Pandemic Will Extend Far Beyond the Organization
Planning Consideration – The scope and assumptions used to conduct Business Continuity planning activities should be expanded to include:
Loss or degradation of critical infrastructure such as transportation, energy, communications, and public health/safety
Socially disruptive events such as increased deaths, isolation, social distancing, and civil unrest
Three orders of succession and delegation for all key employees:
Community-survival activities (i.e., first-responder mentality) for at least 72 hours sometime during an outbreak – activities that require cooperation between local public and private sector entities
Behavioral challenges – people will become incoherent, irrational, difficult to motivate, isolated, and defensive
Limited medical supplies and trained personnel – increased expectation on employer
Major D rivers of Non- Continuity Considerations
Financial / Litigation Exposure of Business Continuity Failure
Contractual time/supply obligations
Failure to meet industry standard of care / duty to care for employees
HR / Employee Welfare Concerns
Union representation / lobbying
Healthcare costs if health risks are retained internally
Cost to recruit / re-train lost workers
Competitive advantage to maintaining operations in a pandemic
Danger of falling behind competitors
Social / Brand Image Issues
Brand issues where trust / reliability are attributes, but not contractually required (e.g. hotels – need to care for guests in pandemic, colleges – foreign students, etc)