Balancing value chain costs against the risksA 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, Zurich’s approach to business interruption modelling provides a practical yet robust approach for the key risk areas.

Business Interruption ModellingBusiness 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 flow, followed by identification,

assessment and quantification of BI exposures,

and improvement measures for unacceptable

risks to finally improve resilience and profitability.

The more complex the business relationship, the

more beneficial 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 ModellingOur BI modelling approach addresses and

quantifies evident and hidden vulnerabilities

that could significantly impact your company’s

business if an interruption were to occur.

The stages include:

1. Defining scope by identifying the business

critical part of your value chain.

2. Building an interdependency framework

of the business critical value flows.

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 financial

impact of their scenarios and focus on

unacceptable risks in order to develop

a beneficial 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

financial 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 approachZurich’s 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 fixed

solution, thereby optimizing efficiencies.

• We structure the analysis to recognize the

fact that data varies in format and availability.

This avoids surplus effort and ensures most

efficient 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.

Zurich’s unique perspective as an insurer of BI

risks has enabled Zurich Risk Engineering to

develop extensive experience in this discipline.

Benefits to your businessZurich’s BI consulting and modelling tool:

• Gives quick but expert evaluation of threats

to key business processes.

• Contributes to a more efficient prioritization

and resource allocation within your

business itself.

• Assembles and presents profit 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 financial

business performance to enhance

operating efficiencies.

• 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 qualified 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 qualified customers through Zurich Services Corporation.

Examples of how we have helped our customers with business interruption modelling:

Major retailer benefits from insights on their value chainA major retailer approached us with the challenge of analyzing the risks in their product

and distribution flow.

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 benefited from insights on the risks of the value chain along with insights

for future site design.

BI modelling for a fine machinery group with over 100 profit centresThe 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 profit 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.