Core Insights

Thoughts on COVID-19

Author: Bob Bernens

On January 24, we began to advise our clients of the need to review and initiate their pandemic response plans. I worried at the time whether we were jumping the gun, but my gut told me this one was different. We are now 186 days since that first advisory email and I still find myself questioning where we are.

While many companies had Business Resiliency plans in place for a pandemic response, many of us failed to realize both the global impact and the duration of the event. I am certainly guilty on that front.

We hear some very promising news that a number of vaccines are in the late stage of clinical trials and the developers are hoping for FDA approval by late November or early December. I believe most of these vaccines are a multiple dose treatment. The number of inoculations required for the country is between 780 million and 1 billion. The logistics of administering the vaccine are not yet being publicly discussed to my knowledge. I fear that it will take a number of months and that we will still be in pandemic mode for much of 2021.

The impact of the virus has not yet been felt in much of Asia. The latest calculation based on WHO reports of 8/3/2020 is that confirmed cases represent about .088% of the population, whereas in North America we are fast approaching about 1%. So per capita, the virus is 10.76 times more intrenched into the North American population than in Asia! Granted some of the statistical variation may be caused by the availability of medical care and testing. The economic and healthcare availability is this broad range of countries makes it a bit difficult if not impossible to draw reliable conclusions. We do know that the spread of the virus in Asia is increasing and the number of confirmed cases in India alone has increased by 18.5% in the last week and 28.5% the week before.

The important enterprise risk consideration is that the impact on the supply chain may still be looming and become a secondary economic cliff. As risk managers, we need to recognize this and be prepared to deal with any impact on our companies.

Many of our small businesses that require proportionately less capital will close their doors as their revenues fall and they can no longer meet their cash flow needs. Part of this will be driven by a cost push inflation in prices as productivity, by their suppliers, falls as prices rise. Borrowing funds to stay afloat is probably not a prudent move even though it creates short term cashflow. The lack of revenue may be far longer and at some point the drain on profits to service the loan will make the business less competitive to the new industry entrants not saddled with the debt or the cost to reconfigure the business. Many entrepreneurs will return as new businesses, when the revenues can support their cashflow. In the meantime, our social norms will have to adjust.

The questions for the rest of us is how to alter our business models to weather the storm and should those adjustments become a better operating solution. For years, we have stressed that our organizations require flexibility to respond to our changing customer demands. Now we have to demonstrate flexibility in other areas in our organizations. This requires that we think outside of our comfort zone.