Business continuity and cascading risks

Over the last two weeks, I've been talking about how to set up your business continuity planning. But there's an important step I haven't discussed yet.

Two weeks ago, I described a basic risk-handling protocol. Then last week, I described how you turn regular risk-handling into business continuity planning. But of course it’s complicated. Some risks can wipe you out; others are nuisance level; many are somewhere in between. Some risks require specialized expertise to address them, but their consequences are grave enough that you can’t just delegate them to the specialists and then forget about them. How do you focus?

The answer is that you have to distribute risk-handling throughout your organization so that risks are addressed by the right people, but in a way that always traces back to top management (who have, after all, final responsibility for the organization as a whole). 

Last week, I said that each member of the Executive Team has to go back to his (or her) people to work out the details of that area’s approach. That step is the key to setting up a system of cascading risk management.

After all, even though business continuity affects everyone, there will always be some actions or some risks that are specific to a particular department or to a particular kind of disaster.

• In case of fire or flood, your operations functions have to think about shutting down their work in a controlled way and getting to safety. Your warehouse function (if you have one) has to think about how to protect your inventory. But your office functions may be able to resume work remotely (once they have all gotten to safety), provided they still have access to your network.
• In case of a pandemic, there should be no significant risk of physical destruction, but you may have more concerns around isolation or availability of personnel.

So yes, you have to start at the top. And the risks you track at the top level are the ones that can wipe you out. But then the members of your Executive Team go back to (let’s say) the middle managers who work for them, to do two things:

• Figure out in detail how to implement the overall strategic approach. (All these steps should be traceable back up through the elements of the high-level strategy.)
• Do an independent risk analysis at that level to see if there is anything special to their areas that was missed at the higher level. Use the same method I described two weeks ago—the very same method that the Executive Team already used.

And then the middle managers do the exact same thing again, engaging with their employees at the working level, to achieve the exact same two goals. 

Naturally if (during one of these lower-level reviews) anyone discovers a risk that affects a wider group (or even the whole organization) but was accidentally missed, escalate it on up the management chain to where it belongs and then ask everyone to update their work to account for it.

In the end, every unit in your organization—every division, every department, every plant, every team—ends up doing some level of business continuity analysis, and tracking the measures that apply at their level. And every year, the whole organization repeats the analysis: to identify what’s changed and to check if all the defined measures are still correct and current. 

           

Business continuity starts at the top

Last week I started talking about business continuity and how to plan for it. As you remember, business continuity is the ability of a business to get back to work after something has disrupted it: hurricane, fire, flood, pandemic, or whatever. Business continuity planning is all the planning you do to prepare for disasters before they happen, so you can get back to work smoothly afterwards.

I said last week that business continuity planning is a part of risk management in general. Concretely, business continuity planning means identifying all the risks that could interrupt your business, or some part of it, and then taking action to mitigate those risks or planning contingency actions in case they take place. The basic approach is exactly what I described last week, but a few aspects are unique.

First, you have to start with your Executive Team. This is not a job you can delegate to the Safety Committee. The reason is that every unit inside the organization—every division, every department, every plant, every team—has to be engaged. They have to contribute to defining how to secure their work (because they know it better than anyone else); and they have to know what to do in case disaster strikes. So you start at the top.

Remember that you are looking for anything that can interrupt any aspect of your operations. This means you have to look not only at your direct operations, but at any support functions: billing, payroll, purchasing, and the rest. It also means you have to think about anything that can interrupt your customers or your supply chain. If you were unscathed by a disaster, but your main customers are out of commission and won’t be ordering for another year, you could have a problem. Likewise with your supply chain.

When you identify a risk (for example, "earthquake"), you cannot assign it to just one Owner. This is one of the big differences between business continuity planning and other kinds of risk management. If disaster strikes—hurricane, fire, flood, earthquake, or whatever it is—it’s going to strike everybody. So you can’t assign the whole problem to Fred or Max and ask him to figure out a solution for the entire company. Instead of that, each member of the Executive Team goes back to his people (or hers, of course) to determine how they have to secure their parts of the business. Depending on the size of your organization, some of them might have to go back to their people as well, to work out the details. Do whatever you have to do, but come back to the rest of the Executive Team with a plan for your area.

Then the Executive Team as a whole reviews the plans to make sure they are consistent. You can’t respond to a disaster by pulling in different directions: so while every team has to figure out what they specifically need, the plans still have to mesh together. As just a single example, if you are going to tell the office folks to work from home they should all be using the same communication platform to keep connected. If your team is the odd one out, you might have to change your plan a little to align with the rest of the company. Make sure you engage all the people you engaged before, so that everyone understands what’s changed.

Finally, when all the details have been worked out, document your plans in the simplest format possible, and store them somewhere that’s easy to find in an emergency. Remind people periodically where to look. (If you do regular fire or emergency drills, one of your steps has to be pulling a copy of the emergency plan.) And mark a day on the Executive Team’s calendar—six months out, or maybe twelve—to do the exercise again.

 

          

Business continuity and risk planning

We've been talking about risk for a month now, and I'd like to talk now about a different kind of risk management: business continuity. Business continuity is the ability of a business to get back to work after something has interrupted it: hurricane, fire, flood, pandemic, or whatever. In fact that's almost exactly the formal definition. ISO 22301:2019, Business continuity management systems — Requirements, defines business continuity as the "capability of an organization to continue the delivery of products and services within acceptable time frames at predefined capacity during a disruption."

Business continuity planning, therefore, is all the planning you do to prepare for disasters before they happen, so you can get back to work smoothly afterwards. The first time you hear about it, you might roll your eyes: One more overhead task we've got to do before we can get back to work! But it's like any other kind of insurance. You never need it until you do.

As an example, think back to March 2020. The world was beginning to react to COVID-19, and there was a lot of excitement as organizations frantically tried to improvise what to do. But I worked for Bosch at that point, and some years earlier Bosch had required every plant and every office to define (and regularly review) a Business Continuity Plan for how we would respond to various kinds of disruption. One of the entries on the form was "global pandemic." I remember the meetings where we reviewed this plan, and back in the 2010's nobody rated that as a likely risk. But we worked out a plan for it, just to be complete. Then when March 2020 came and other companies were caught flat-footed, our General Manager pulled our plan off the shelf and it already spelled out exactly what to do.

How do you plan for business continuity?

I want to proceed in three steps. In this post I'll review the basics of risk handling, keeping in mind some of the salient points we've discussed in recent weeks.* In my next post I'll talk about why your business continuity planning has to be driven from the very top. And then in a third post I'll describe how to embed it into the organization as a living practice instead of a show for the auditors. 

When I describe basic risk handling, I usually start with a concrete example that everyone can imagine. Think of the Safety Committee in a grocery store. They think of all the ways somebody could get hurt, and then define measures to keep it from happening. If someone breaks a jar of spaghetti sauce in Aisle 3, put up a “Wet Floor” marker and mop it up. Don’t put heavy things on high shelves. And so on. 

Sometimes they identify a risk that’s not very likely: What if a customer brings his dog and the dog bites somebody? Yes, you want to know what risks you face; but you can’t prevent everything. So you rank your list in order of importance. Plan for the ones that really matter, and let the rest go. In general your ranking should consider at least two things:

• How likely is the risk?
• And how bad will the impact be if it happens?

In the simplest case (there are ways to make this a lot more complex!) you ask each question about each risk and answer with Low, Medium, or High. Then you use these two scores to assign a priority to each risk as follows:

Priority = Likelihood x Impact

	High	Medium	Low
High	High	High	Medium
Medium	High	Medium	Low
Low	Medium	Low	Low

On this scale, for example, “getting bitten by a customer’s dog” probably ranks Low for likelihood but High for impact, giving a composite priority of Medium.

(You can see that this rating method is similar but not identical to the one we saw for evaluating risk in audits: there we said priority = {number of nonconformities} x {severity}. The overall approach is very flexible.)

Then address all the important ones: this means at the very least all the ones where priority = High, but consider the others too to see if there is something you can do where the balance between effort and outcome is reasonable.

"Addressing" a risk means:

• If possible, prevent it. 
• If you can’t prevent it, take steps now to mitigate the impact when it happens.
• Also, consider how you will respond when it does happen: those are your contingency actions. 
• To make sure this gets done, assign the risk to an Owner, and assign a deadline by when the actions have to be in place. Then be sure to follow up that they really are.
• And remember that root cause analysis of a risk can help you find the most effective approach.

What about the risks you choose not to address? They stay on the list anyway. And your priority ratings aren’t static. From time to time—at least once a year, if not more often—review your list to see if things have changed. 

• As you take mitigation steps, for example, the impact of some risks will drop and so their priorities will change. 
• The priority of others might rise, depending on changes in the outside world. Think how low most companies rated the likelihood of "global pandemic" in 2019.
• Check whether your contingency plans are still correct and current. Is that still the best way to handle this risk, if it comes about? 
• Are the responsibilities all assigned to the right people? Are your supplies all in stock and up to date?
• Assign actions as needed, and follow up to ensure the actions are closed on time.  

In other words, your risk handling becomes a living system.

So even if a risk falls below your threshold and you don't address it right now, keep it on the list. Then the next time you review the list—next quarter, next year, or whenever—you can think about it again. And as long as it stays on the list, you won’t forget.

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* What follows in the rest of this post borrows heavily from a post I wrote more than a year and a half ago about basic risk management. But I have updated my remarks by taking into consideration the last month's sequence of articles. You will find links throughout.