Balancing value chain costs against the risks

A true understanding of your business interruption risks is

fundamental, especially for complex multinational companies.
In our current global markets, bottlenecks and interdependencies
are key drivers for a business interruption. Whether it is interruption
analysis, business impact assessments or supply chain mapping,
Zurichs approach to business interruption modelling provides
a practical yet robust approach for the key risk areas.
Business Interruption Modelling
Business Resilience
A business interruption has the potential to
inhibit productivity and could have multiple
negative impacts on your organization. Some
of the adverse consequences can include loss
of customers, reputational damage, higher cost
of capital, poor customer service, legal and/or
regulatory issues, lower employee morale,
and even delays in projects, products or other
strategic growth plans. There is also a real
danger of a fall in share price, as shown in
the chart overleaf.
Impact of a Business Interruption
Business interruption (BI) risks are best managed
based on an in-depth understanding of the
value chain, with a main focus on the business
critical value ow, followed by identication,
assessment and quantication of BI exposures,
and improvement measures for unacceptable
risks to nally improve resilience and protability.
The more complex the business relationship, the
more benecial a structured interdependency
analysis would be.
What is your level of business
interruption resilience?
How well do you understand the shape
and robustness of your value chain?
Which are the most relevant internal
and external disruption threats?
How dangerous and costly could these
threats be?
Key stages of Business
Interruption Modelling
Our BI modelling approach addresses and
quanties evident and hidden vulnerabilities
that could signicantly impact your companys
business if an interruption were to occur.
The stages include:
1. Dening scope by identifying the business
critical part of your value chain.
2. Building an interdependency framework
of the business critical value ows.
3. Identifying relevant BI vulnerabilities as loss
of resources such as supplier, production,
storage and customer.
4. Assessing their extent based on
interruption scenarios and modelling the
effects quantitatively.
5. Prioritizing the risks based on the nancial
impact of their scenarios and focus on
unacceptable risks in order to develop
a benecial mitigation plan.
6. Assessing the effectiveness of current
Business Continuity Plans and identifying
improvements actions.
Our BI modelling services, including our unique
software, EVIDENCE, assesses in detail, the
nancial effects of possible scenarios that may
threaten business continuity.
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Figure 1: Implications of a business interruption on shareholder value.
Source: Georgia Tech, 2006.
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Parts shortage
Production problems
Customer changes
Development problems
Ramp/roll-out problems
Quality problems
BI modelling not only takes account of direct
effects but also, where applicable:
Effects arising from interdependencies
with other sites, suppliers or customers.
Likely management decisions arising
as a result of the incident or risk.
Existing proven mitigation or recovery
plans, (eg. production transfer capability).
Contingency plan/recovery costs.
Key customer dependencies.
Our approach
Zurichs extensive experience in evaluating
business interruption risks combines insurance,
business management and modelling skills into
a unique offering.
Our BI modelling approach takes many forms,
depending on the business size and complexity.
The level of evaluation is tailored to your
requirements rather than offering a xed
solution, thereby optimizing efciencies.
We structure the analysis to recognize the
fact that data varies in format and availability.
This avoids surplus effort and ensures most
efcient use of resource.
Outputs from the property/business
interruption assessment can be incorporated
in the analysis of the entire value chain.
Figure 2: Our BI modelling software EVIDENCE the value chain can be
modelled according to your different geographic locations.
Zurichs unique perspective as an insurer of BI
risks has enabled Zurich Risk Engineering to
develop extensive experience in this discipline.
Benets to your business
Zurichs BI consulting and modelling tool:
Gives quick but expert evaluation of threats
to key business processes.
Contributes to a more efcient prioritization
and resource allocation within your
business itself.
Assembles and presents prot and loss
exposure information for all disruptions in a
single model to help data management and
interpretation, especially when coupled with
our supply chain assessment and mapping.
Allows the communication of risk issues
to stakeholders.
Acts as a strategic link between business
continuity management and nancial
business performance to enhance
operating efciencies.
Produces information that can support
decisions regarding risk strategies
including transfer.
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Zurich Insurance Company
Mythenquai 2, 8022 Zurich, Switzerland
All information contained in this document has been compiled and obtained from sources believed
to be reliable and credible but no representation or warranty, express or implied, is made by Zurich
Financial Services Ltd or any of its subsidiaries (the Group) as to their accuracy or completeness.
Some of the information contained herein may be time sensitive. Thus, you should consult the most
recent referenced material.
Information relating to risk engineering is intended as a general description of certain types of risk
engineering services available to qualied customers. The Group and its employees do not assume
any liability of any kind whatsoever, resulting from the use, or reliance upon any information,
material or procedure contained herein. The Group and its employees do not guarantee particular
outcomes and there may be conditions on your premises or within your organization which may not
be apparent to us. You are in the best position to understand your business and your organization
and to take steps to minimize risk, and we wish to assist you by providing the information and tools
to assess your changing risk environment.
In the U.S., risk engineering services are available to qualied customers through Zurich
Services Corporation.
Examples of how we have helped our customers with business interruption modelling:
Major retailer benets from insights on their value chain
A major retailer approached us with the challenge of analyzing the risks in their product
and distribution ow.
By applying our BI modelling software EVIDENCE we were able to give support to the
complex need of your project. We helped our customer with our guidance and collaboration
to identify the most relevant product groups and so reduce the complexity of the initial task
but delivering the required answer.
The company also beneted from insights on the risks of the value chain along with insights
for future site design.
BI modelling for a ne machinery group with over 100 prot centres
The starting point for this project was a question about appropriate BI cover with the
subsequent challenge to analyze the interdependencies of a group with so many prot centers.
In spite of a considerable push, the customer was at a loss and turned to us for assistance.
Our BI modelling software helped the customer with detailed insights on internal and external
dependencies, the ability to prioritize the property protection according to the business
importance and therefore protecting the market leadership.