Industries around the world face some certain business risks. These risks emanated from current situations and also the outcome of past events. According to Allianz Risk barometer, there are top ten global business risks which the world faces.
These risks are gathered from surveys all around the continent. These risks are
- Business interruption
- Market developments
- Cyber incidents
- Natural catastrophes’
- Changes in legislation and regulations
- Macro-economic developments
- Loss of reputation
- Fire explosion
- Political risks
- Theft and fraud
These business risks have however been a major setback to every business in the world today. The categories of these risks can be found in every industry in a country. With responses gathered by Allianz group, business interruption still holds the highest risk because all other risk have a direct impact on business interruption.
The adverse effect of the other risk leads to business interruption. These adverse impacts can be seen below.
Market development: Businesses today are facing a wide range challenges. This range from complying with legislative environments, import and export restriction, bans, port closures, government involvements. For instance, if restrictions are placed on imports, there will be unfavourable balance of trade to some point.
Reason for this is because some companies rely heavily on imported raw materials which cannot be produced locally. In d case of import restrictions, supply chain will seize and business will be halted, there by leading to business interruption.
Cyber Incident: This has been on the increasing side yearly. The world at large today is a technological world where information technology has made business very easy. In as much as there are benefits in this, so is the risk involved. Technological failures, loss of data, cybercrimes (hackers), human error etc. Using cybercrime (hackers) as an example, a bank system was hacked by a very good hacker, immediately the bank knew but couldn’t figure out where it was coming from, the hacker has system control.
As soon as this happens, the bank will shut down every operation from transfers, trading, withdrawals, and deposits and so on. Imagine a supplier wanting to transfer at that moment, he loses his contract, with the cybercrime in place, the supplier loses his contract, bank loses trust and customer and this leads to business interruption at that point in time. Change in legislation and regulation: This form of business risk can be emphasized with many factors but a major point to consider is “Economic sanction”. This is not majorly based on economic circumstances but for other reasons like political, military and social issues.
They are used in achieving domestic and foreign purpose. This leads to business interruption. An example is BREXIT and TRUMP.
Natural Catastrophe: unfortunately this is a low risk in Africa but pose a high risk in Asia, America and possibly Europe. Once an event like this happens, the magnitude of business interruption will be very high because recovery mode takes quite a while. Examples are earth quake (recently in Italy), flood (japan), and hurricane (America).
Macro-economic development: one major example of this risk that leads to business interruption is inflation. Since inflation is a persistent increase in prices and the fall in purchasing value of money, then the value of a commodity today won’t be the same tomorrow thereby leading to business interruption through pricing.
Loss of reputation or brand value: Reputational risk is a risk resulting from loss of reputation or brand value of a company. This might not be in monetary terms, rather an occurrence of event. An example is a staff involvement in riots, theft, shady deals by using the company’s name or an imprisonment of one of the directors. This will lead to business interruption because the investors, clients will lose fate in the company.
Fire, Explosion: Not to emphasize much on this, this would definitely cause business interruption by halting every business transaction for a particular period of time.
Political Risk: This also has an adverse impact in business. Examples are war, terrorism, upheaval etc. With events like this, industries will fear to continue business in countries being affected by this, thereby losing investments which have been placed in such countries. Example is the current situation in Gambia where the current president has refused to leave office for the president elect.
Theft, fraud and corruption: This section poses to be the least of risk to business interruption but this need to be mitigated also. A dishonest activity that leads to financial loss, abuse of power and voluntary act of stealing can ruin a business, there by leading to business interruption.
Business interruption is a period when a business cannot operate due to some certain events. These events form the part of the top 10 global business risk by Allianz group. However, one major way to mitigate loss from these unlikely events is through Insurance.
Written By Adetutu Michael, Risk Manager In A Top Nigerian Bank. He Can Be Reached On Twitter @Supersmd
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