The global economy is in a state of rapid transformation in which words like stability, equilibrium, predictability, or sustainability have lost their meaning. At this point, what counts the most is to be prepared to face major destabilizing events before they materialize. And to survive. High business resilience can be instrumental in this sense. And resilience is necessary for sustainability. A business that is not resilient will never be sustainable.
But resilience is not just a fancy buzzword, which has become popular thanks to the EU’s National Recovery and Resilience Plans.
Resilience is a fundamental characteristic of all things, and measures how well they can resist shocks.
Our lives are punctuated by shocks of all sorts: wars, pandemics, natural disasters, scandals, social unrest, supply chain fragilities, de-globalisation, etc. Many of these are on the rise. What makes things worse, is that the over 40.000 public companies and over 300 million private business are increasingly interdependent and interlinked. This means that the destiny of a business can depend on a multitude of factors that can originate thousands of kilometers away and be, apparently, uncorrelated with it. These factors are so numerous that in the context of Risk Mitigation and Management it is impossible to account for them all. In fact, most are unknown and often strike without early warning.
When faced with a myriad of threats, and when you cannot prepare yourself to face them all, there is only one sensible approach – increase your resilience.
Resilience is a great systemic indicator of the state of health.
The anatomical disease section in the Human Disease Database includes 18 major categories with more than 26,000 diseases representing all areas of the body, including blood, bone, immune, muscle, and reproductive diseases. The global disease section contains 6 categories: cancer, fetal, genetic, infectious, metabolic, and rare diseases, and almost 18,000 specific diseases. some are very complex to diagnose and to treat. Can you imagine getting a vaccine shot for each as a form of Risk Management? That would of course be highly impractical, to say the least. In fact, doctors suggest a different strategy – lead a healthy lifestyle. This will increase your resilience and help you face better any disease should you catch one. This is exactly what a business should do. Independently of its business strategy, the goal should be to be as resilient as possible.
Measuring and Managing Resilience can be done quickly using the Digital Business Check-up portal (click on image).
The portal allows one to analyse any form of business, such as portfolio, a fund, a company, or a system of any of the above, and produces:
- a measure of resilience (from 0% to 100%)
- a Resilience Rating (from one to five stars)
- a list of factors which drive resilience (or fragility)
Resilience can become the foundation of new Lending Models. The cost of credit can be easily linked to the resilience of the business of a company, private or public, or even to that of an individual.
In the case of corporations, all that is needed to establish a Corporate Resilience Profile is a balance sheet.
Banks can easily implement such an approach as they already possess the necessary data. In the case of individuals,
A Personal Resilience Profile can be established based on transactional data.
Transactional data is abundant and may easily be employed to link the cost of lending to resilience. But let’s take a look at how this works.
A retail bank has both corporate and private clients. In the case of a large bank, corporate clients can span numerous market sectors and categories. An example is shown below.
For each market sector it is easy to analyze the resilience of each corporation and to establish a Resilience Database. The example below is from a Chinese retail bank and shows an extract of companies belonging to the chemical industry.
The above is essentially a collection of one-page resilience reports, such as the one illustrated below. Note that an alternative way to say “resilience” is “resistance to shocks”.
A quick glance at resilience report shows the actual rating – two stars in the above example – and a bar chart, ranking Balance Sheet entries that impact resilience the most.
The bar chart tells us where to intervene in order to increase resilience or to simply fortify even a healthy business. The entries at the top of the chart indicate where potential fragilities may be lurking.
The Digital Business Checkup system – also known as the Resilience Management System – is extremely easy to use. Click here to see how it works and contact us to obtain access credentials.
0 comments on “Digital Business Checkup – Beyond the Concept of Risk”