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Governance, Risk and Compliance
By Resolver Modified February 7, 2021
Natural disasters are a ramping threat in today’s efficiency-driven business world. Modern corporations make use of tightly run supply chains to minimize redundancy and maximize their budgets. On top of that, with urban centers becoming hotspots for burgeoning businesses, the fact that a single company can be crammed into a single, multi-floor building can lead to issues if a natural disaster demolishes that one spot.
A new infographic from Boston University’s Masters in Specialty Management program recently illustrated why natural disasters should be at the top of every organization’s priority list: as many as 25 percent of businesses don’t reopen following a major disaster. That means it only takes one severe weather incident to pose a major threat to company operations.
Here are four reasons why natural disasters can be so impactful to unprepared firms:
This is probably the most prominent risk that businesses need to consider. When natural disasters strike, they often do substantial damage to physical assets. Company buildings and property may be damaged, or equipment could also be ruined.
For instance, Eurogamer recently reported that U.K.-based videogame developer Hello Games recently lost everything after a nearby river broke its bank. Computers, monitors, furniture, doors and a wall were all lost due to water damage and to make matters worse, insurance didn’t cover the incident because the firm was located in a flood zone.
Natural resources are another direct organizational loss in many disasters. For example, cold weather can destroy crops or a wild fire could destroy timber being collected and stored. As is the case with physical damage to assets, businesses can calculate precisely the damage done by disasters to raw materials.
Unlike the previous two loss categories, supply chain disruptions are indirect organizational losses that may be a bit more difficult to calculate. The more corporations rely on supply chains, the greater the effect of a disruption.
For example, if a manufacturer relies on shipments of raw materials, production could be severely delayed if a main road gets washed out due to a flood. In turn, this could lead to delayed shipments of finished goods to retailers, which may even affect contractual obligations. Of course, if supply chains aren’t so tightly run and aren’t as important, then the damage may not be as severe.
This is another indirect organizational loss. During severe weather events, people may not be able to attend work or even if they can, they may not be able to operate at peak efficiency. Power outages, Internet outages, inability to use the appropriate tools and other similar issues may cause downtime, which can lead to significant losses.
Natural disasters can cause a lot of issues for companies, in terms of both direct and indirect losses. This is why businesses must make natural disasters a top priority in their risk management efforts. According to the University of Boston infographic, organizations can effectively manage natural disaster risk by simply investing in disaster preparedness. Every $1 spent on disaster preparedness can prevent $7 worth of disaster-related economic losses, according to the school.
Businesses should consider all the different impacts of natural disasters, ranging from lost sales and income to regulatory fines. From there, steps such as uninterruptible power supplies to better site selection can be taken to mitigate – if not outright prevent – many of the dangers associated with weather-related threats.