Bubble wrap your business

This is not going to be another ‘risk management’ story that goes on and on about minimising the ‘bad stuff’ that might happen to your business. Or helps you choose an insurance policy that sort-of-nearly meets what you might think matches the risks you could be faced with.

No, this feature will highlight the new thinking, energy and initiatives which innovative people in the local insurance/risk management industry are using to change the attitudes and approaches of New Zealand’s commercial, industrial and agricultural businesses, by harnessing the positive aspects of the discipline.
And leading insurer QBE, in a break with the norm, shares its insights and its own experiences in dealing with the unexpected.

Steve Vaughan, part-time executive director of the NZ Society for Risk Management, director of InsideOutWorks and a leading thinker-and-doer in bringing about this change in focus, says lots of people still talk about risk mitigation, “a fancy phrase for reducing or lessening”, as if that is all risk management is about. “In the real world the best managers – yes every manager needs to be a risk manager – have to manage and take action on both threats and opportunities.”

So is this hard, I ask?
“No, not really, there is actually a simple formula, which I’ll give you in a moment.”
And where does this leave the insurance component?
“Good business insurance operators will have people who are able to help you with managing risks, and the best ones will actually help you keep the cost of insurance down,” replies Vaughan.

Are there constraints with this fresh approach?
“You absolutely have to be disciplined. A missed threat can bite your business badly. A missed opportunity is, well, lost business.”
There has to be consistency says Vaughan. “And no, it’s not some sort of magic ‘black-box’.
“It is all fairly simple, but does need some clear thinking.”

So here’s that simple formula to ‘manage threats and opportunities’ and take your risk management practice to a new level:
1. Know what you want to achieve.
2. Know and document the ‘environment’ (business, regulatory, people, competitors,     clients etc) you operate in.
3. Work out who you need to be talking to and how to do this.
4. Brainstorm the threats and opportunities to 1 and write them down.
5. Rank the items you wrote down in 4, in order of importance.
6. Work out what you need to do to deal with them – i.e. reduce or take more risks?
7. Do the important actions in step 6.
8. Make sure you keep talking to the people you need to while you do all of the above.
9. Check that what you did had the effect you expected.

When challenged as to why he didn’t have 10 points, Vaughan noted with a twinkle that readers could attend the Risk Society’s annual conference in September at Te Papa (details on their website).

To know what you want to achieve (point 1) Vaughan says you must be clear about what your business is. The important thing is to include all the things you want or need to achieve. This will include keeping your workers safe and healthy (“it’s the law”); making a profit (“unless you are a not-for-profit”); having a good reputation and getting on well with your customers; and complying with other laws (“paying your taxes”). Also, include your goals to develop your business.

He insists everything is documented, tested and ‘brainstormed’, questioned and done consistently.
“Actually do the important actions. It sounds simple, but you would be surprised how many good ideas get thought-up and not actually followed through. Remember choosing not to do things is quite valid too; but make the choice a deliberate one.”
Communication, he believes is vital. “Deciding changes and not having your own people understand them is a recipe for things not happening. Talk to your customers and suppliers early. People are tolerant of ‘bads’ actually happening; if you tell them early. Customers can become your allies in developing new lines of business too.
“This ‘risk communication’ is important because, if you keep the communication channels open, people will be more tolerant when things go wrong, and will be positive when you decide to take some opportunities.
“Consistently ask what events might either get in the way of achieving what you want, or present opportunities to get there faster. Keep questioning how likely they are,” he says.

Vaughan, an expert witness at the Pike River inquiry, is a great believer on offsite ICT backup too.
This is where Ian Forrester and Plan-b (‘backup and running’) company comes in with ever-increasing success, proven by them becoming a finalist in the 2012 AUT Excellence in Business Support Awards. Forrester bought out the remaining stake of a fledgling business his father-in-law had helped fund, worked hard and is now starting to reap the benefits.
But he is concerned at a fatalistic Kiwi approach to disaster, which he believes stems from the Number 8 wire and ‘she’ll be right’ attitudes. Their recent survey showed more than 96 percent of respondents hadn’t tested or proven they could continue to operate their business in a crisis.
“This is worrying stuff,” he says. “Testing is key. It proves your business planning, systems and infrastructure can continue in a crisis. By testing, you are finding problems, fixing them and creating peace-of-mind for employees, shareholders and customers. If you never test, you will never know whether it is robust enough.”
Plan-b’s origins stem from a company providing a backup IBM AS400 to selected clients. Today it offers a range of services including offsite tape storage; regular testing of clients’ business continuity systems, including their Server Recovery Exercise Service (triggering everything from daily backups to seamless ‘cloud’ continuity ‘to match the needs of your industry’); office space; and most importantly advice and experience.
“The reason none of those surveyed organisations tested their systems goes back to who gets given the backup tasks? It’s nearly always the office junior, with no authority and little right to question. Give us a task like backing up your system and we won’t miss doing it because of leave, sickness, an emergency or office party. It’s our job; it’s what we do,” says Forrester.
“There is no almost in this game. Nothing grey. You either do it properly, or don’t bother. And if you think your insurance policy helps – what are you going to do without complete backup? Drown your sorrows as your business goes under?
“In a modern business, your data is your capital. Lose that and you don’t have a business. Even the most ‘irreplaceable’ person, covered in keyman insurance, can be replaced or a role changed. It comes down to where your priorities lie as an SME owner-manager, do you want a new Audi Q7, the Mustang, boat, or a decent, active business continuity system?”

Human capital risk management
Triplejump CEO Cecilia Farrow is another entrepreneur and business leader in the risk management niche. She’d love to re-engineer the entire ACC structure and offering. But that’s a story for another day.

Farrow is also staggered at the cavalier attitude to risk and opportunity. Triplejump itself has seized an opportunity, going ahead in leaps and bounds, providing a ‘boxed human capital risk management solution’ for, mainly, accounting firms, to introduce to their clients, who have all weathered the yo-yo business environment of the past few years.
“Our needs analysis process assists SMEs to understand where and why they are vulnerable and the extent of the potential financial risk, enabling them to make informed decisions about how to manage the downsides,” says Farrow.
“Tailored insurance enables the business to manage both temporary and catastrophic events, such as permanent disablement and death. It can provide large monthly payments to match the timing of losses and new costs as they are predicted to occur. But that comes after the key earlier parts of the analysis: retain; reduce; avoid; and transfer (insurance).”

Alarmingly, she outlines a recent case where a very profitable export business, with a CEO driving sales of $8.5 million a year, went through an exercise which finds sound-but-conservative loss estimates. Based on the CEO being taken seriously ill, it found that the profitability of the business would likely reduce from a healthy $450,000 to minus $13,000. That’s a total ‘financial effect of $580,000’ with the only ‘obvious out-cost’ being the hireage of a contract manager at about $60,000.
“Like many privately-owned enterprises, the managing director, often deemed to be the ‘glue’ that holds all the functions of the business together, is not on a ‘market rate’ salary, as his income is bolstered by profit bonuses and dividends,” explains Farrow.  
“So not only are his real costs/value concealed in the business operations, but ‘replacing’ him even for a relatively short-term exposes both the sales, profitability and familiarity-with-the-business-downside, plus the add-on costs.”
She would tend to a ‘loss of profits’ insurance cover in similar circumstances in preference to keyman cover. But each situation is inevitably unique. Call her.

QBE shares business continuity plan
QBE has, unsurprisingly, been a household name in New Zealand since its founding in 1890. It is also Australasia’s largest international general insurance and reinsurance group, and one of the top 25 insurers and reinsurers worldwide.
QBE’s marketing and communications manager, Val Graham, recently broke with convention to exclusively share the company’s development and use of its Business Continuity Plan (BCP).

“The very fact we had instituted, rehearsed and honed our BCP, had an Emergency Management Team (EMT) in place (with deputies nominated), stood us in very good stead when the Christchurch event happened,” she says. “They had all taken part in disaster simulation exercises approximately every six months. So everyone knew what she/he should be doing and which team member was responsible for each task.  
“It’s important to be aware of your people’s strengths – work out in advance who is good under pressure. Tailor the tasks accordingly.”
Interestingly, QBE keep their BCP plan in an easily accessible pack, so people can keep it on their desks.
“It’s the last thing to grab as you exit the building! Also, keep a copy on your phone or on a flash drive so you have access to the information if you cannot re-access the building. Have a copy at home, too,” says Graham, who recommends having emergency messages for the website pre-drafted and held ready to be implemented at a moment’s notice.  

QBE’s good relationships with suppliers paid off too. That meant they could get new laptops, phones and office equipment down to the Christchurch team within a day or two, to get them up and running, and help the brokers with the flood of claims which was just starting.
That’s the moment they opted to break the mould and opt for the positive upside in risk management, says Graham.
“It was very important to take a ‘human’ view of the situation unfolding before us. Business owners could not access their premises and still had their bills and staff to pay. Given the circumstances, where we knew this was the case, we made payments without evidence of the claim – against the ‘rules’, but the right thing to do.  
“We also extended periods of insurance for those who could not renew on time because brokers were so ‘flat out’ in dealing with their clients who had suffered major losses.”

Other lessons QBE learned include:
• Move very quickly if you identify good quality, suitable replacement premises. Resources are scarce – you need to be in quick!
• Have a recognised counselling service on standby. They will be needed.
• Know who your ‘first-aiders’ are. Keep their numbers on your phone.
• Have a reserve of cash on hand in your emergency survival kit and/or at another location. When power is down EFTPOS doesn’t work.
• Encourage your staff to keep important BCP numbers programmed into their mobiles, so that they can call you too.
• Text communications still gets through when voice is jammed and email is down. (They can now text our key stakeholders in the event of another emergency – and, yes, they’ve tested it!)

 “One of the key learnings has been the length of time everything has taken, much longer than any of us expected to get back to normal,” says Graham.

TO FIND OUT MORE…
www.qbe.co.nz
www.triplejump.co.nz
www.risksociety.org.nz
www.insideoutworks.co.nz
www.plan-b.co.nz