COVID-19: Top Risk Managements Tool to Use

Covid-19 has shown how volatile our environment is. It underscores the need for better risk management. As of this writing,  there is no light yet on how it will end. However,  the risk management frameworks learned from previous crisis should cushion panic and unwarranted reactions to this unfortunate event. Learning from SARS and Avian Flu, contagion should have been part of the extreme scenarios to expect. Thus, risk mitigants should have been included.  With Covid-19, these mitigants and tools should be invoked and find its  usefulness to mitigate losses.

The top three most relevant tools are Business Continuity Plan, Contingency Funding Plan and Risk Forecasting. 

1. Business Continuity Plan

a. People / Employees

i. Safety First – ensure employees are safe. Follow the guidelines of local, national and global health authorities such as taking temperature in the entrance of the premises and providing masks and alcohol in the vicinity. Continue the reminders of  good hygiene. Prohibit travelling international or local destinations.

ii. Activate Call Tree – re-check and activate call tree to validate if any of the employees are infected and ensure they are working and able. The back-up system would be easily implemented with  the call tree activation.

iii. Ensure BCP Committee will meet daily or any other frequency to be updated of recent developments and provide appropriate recommendations to the management and announcements to the whole organization.

b. Process 

i. Work  realignment – given the one-month or so lock down period encourage work remotely. Provide rotational guidelines on who will be reporting in the company premises periodically. This is applicable especially in the premises near or at the airport or the outbreak locations. This would also apply given the one meter social distancing advice from health authorities.

ii. Location Realignment – the location lock down would be provide challenge in movement of employees especially if  the task would require physical presence. Relocation  would be a good alternative. 

iii. Intensify use of internet and cellphone – encourage use of web-based meetings. With customers knowing the situation, they would also prefer tele-conference and non-personal communications.

c. Communication – customers and suppliers

i. Customer – reassure customers of continued operations. Provide notice and guidelines if there are major changes in the process or contact numbers.  

ii. Supplier Communications- check support from suppliers. Focus on Strategic and critical suppliers.  The approach should be aligned with the company’s outsourcing policies.

2. Contingency Funding Plan

Check the bench mark indicators and early warning signals in the contingency funding plan. This should be evaluated in light of the situation along with the Liquidity Crisis Management team and /or Asset Liability Management Committee.

a. Validate full availability of approved credit lines (for non-bank) or deposits /investments/capital reserves (for banks).

b. Collection Efficiency – monitor if the efficiency indicators still within the set standard. Tele-collection would be at advantage with customers not travelling. However, prioritization of payable vs purchases of daily personal supplies would be challenge. This would be the same for companies- would they prioritize payments or funding of operations (given the expected low sales).  Depositing and forwarding of checks to the companies or banks would be another issue given the checkpoints in various locations.

c. Past Due level – intensify collection, offer discounts, monitor the actual past due vs the tolerable level. Actions should be within the Credit Policies. In case of deviation, escalate to appropriate authorities.

d. Positive maximum cumulative outflow – monitor the maximum cumulative outflow vs the benchmark for tested periods.

3. Risk Forecasting 

a. Market Risk

i. Determine foreign denominated currencies on hand. Whether long or short, ensure appropriate consultation has been made before execution.

ii. Strictly monitor the investments – equities or bonds especially issued by heavily hit countries. As this is a global pandemic, holding on to the investments could be an option.

b. Credit risk

i. Based on the existing reports such as loan / bonds per industry,  keep in touch with sales/commercial to assess how the customer is doing.

ii. Listen well, in case support is needed such as moratorium, discounts, etc. Provide options based on company’s Credit Policies.

 Industries and employees heavily affected are:

  • Food services and drinking places
  • Air transportation and support activities.
  • Rail transportation and transit.
  • Hotels and Accommodations.
  • Amusement, gambling and recreations. 

iii. Any organization would come to a critical decision whether to continue supporting customers on credit, initiate new accounts or increase credit lines. Along with financial evaluation, compute the Value at Risk  for the next six months to one year for each corporate customer whether in financial, manufacturing or service sectors for timely and aptly decision making.

It maybe not be included among the risk management tools, but,  prayer is really good tool.  Pray for a cure and ending to this suffering.