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
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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
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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
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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)
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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
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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
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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
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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
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8
How does BCM link ERM?
BCM is the key mitigation for
continuity risks
BCM is becoming more and
more a strategic topic!!
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9
BCM Process
Analysis
- Conduct business
impact analysis
- Conduct threat
analysis
- Conduct requirement
analysis
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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
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Step 2: Example of results of quantification unit level
Supply chain analysis
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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
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