“Dealing with the risk contagion”

It’s been a year to remember and a year to forget at the same time. One day we will assess the experience of living through these extraordinary times and share insights with another generation of leaders but for now it has largely been one we want to get through or put behind us and forget.

Covid-19 pushed our industries and its respective leaders hard, some to the brink, illustrating risks beyond those we are used to dealing with and illustrating the contagion from one to another, even highlighting critical interdependencies between industries.

New Zealand’s finance minister Grant Robertson unveiled an unprecedented $50bn fund to establish a series of measures designed to support New Zealand businesses through the period with the purpose of increasing demand for our products in international markets with the hope it will keep or create jobs or be used to retrain talent to meet new needs.

It is reported as being the most significant financial commitment in modern history and left $18bn of that unallocated to deal with the uncertainty that Covid-19 brings. It feels right when the end or what we may need to deal with isn’t clear and if luck is on our side it can be directed to growth as opposed to business continuity.

It helps immensely as leaders address challenges with the health and safety of their people, decrease in productivity and output due to new measures, or market side risk such as bottle necks in supply chains and geopolitical situations affecting access or demand even though New Zealand is not directly involved.

It also illustrates the complexity of risks which are exasperated when services or interconnected industries have their own challenges.

Let’s look at two examples.

Logistics is facing regulatory changes, environmental challenges and overcapacity while dealing with a decrease in loading and port movements during lockdown. This is a concern as New Zealand equates to an est. 0.5% of the larger shipping lines total annual revenues and these shipping lines have had to reposition many empties to coincide with our season at their expense which begs the question of what business decisions they will make and what that means for exporters.

Second observation is that industries are experiencing a contraction in credit insurance as insurers manage their own exposure, reducing or on occasion pulling insurance on long time trading partners. This isn’t new, but what is interesting is that executives are facing difficult decisions as a result. Decisions that traditional or best practice approaches could see them deciding to dump highly perishable food on the basis that they do not have adequate credit insurance to export? The question then becomes do executives and their management teams make informed decisions based on decades of experience when other avenues are exhausted, and should Governors endorse such a move? It isn’t a black and white situation. NZECO is assisting in this area, but is it enough?

It could turn out that the $18bn may need to be split between growth for New Zealand and continuity of services in the future.

It is leading to a more dynamic approach to assessing and addressing risk.

By understanding clusters and the connectedness of risks in our business it moves us from a two-dimensional view of independent risks and the creation of a static risk register to a dynamic interconnected view of four dimensions of risk.  The likelihood of something occurring, impact it will have, the velocity at which it will take hold and connectivity to other related risks illustrating a probable emitter that is likely to set off a contagion of risks within an organisation.

Ngā mihi, nā,

Andrew Watene

Ngāi Tuhoe

Food, Agribusiness and Exports Lead at KPMG New Zealand

View this week’s headlines on our Fieldnotes page here, or alternatively on our app available on Apple and Android devices.