Sound Policy: Risk, resilience, and the hidden cost of disruption

Lew Abramson (Host) 

Welcome to Sound Policy from FM, a podcast where we share the latest insights on protecting today's businesses. I'm Lew Abramson, guest hosting for Brian Amaral. And today we're looking at how the supply chain and human element are impacting business interruption, how to connect those exposures to ROI, and if businesses are actually becoming more vulnerable, or if we're just more aware of the risks. Our guest, Jessica Mizenko, is Global Manager, Business Risk Consulting here at FM. Jess, thanks for joining us.

Jessica Mizenko (Guest) 

Absolutely.

Lew Abramson (Host)

So, what is business risk consulting, and how does that apply to what we do here at FM?

Jessica Mizenko (Guest)

So, the business risk consulting team and property valuation teams are a group of financial and valuation professionals. And so, what we really focus on is making sure our clients and our underwriting teams understand the values and kind of risk quantification behind what they're underwriting, right? And so, making sure they understand what we're insuring, what's being transferred from a risk standpoint to us financially, and helping our client service teams kind of understand that and the clients understand that.

Lew Abramson (Host) 

This gets into business interruption, correct?

Jessica Mizenko (Guest)

That is correct.

Lew Abramson (Host)

So, what are we looking at when we talk about business interruption? What does that, what does that fold into for a business owner?

Jessica Mizenko (Guest)

Yeah, so it's funny you say that because business interruption is not something that people technically learn, either in what I'd say, like a finance or accounting class, or even sometimes even in basic kind of insurance classes. And so, our policy obviously covers repair and replacement of property, but also what they call business interruption insurance. And so, the reason why our groups exist is to help our clients from that perspective, understanding what that risk is. And so, if you think about business interruption specifically, it is really just looking at the profitability of the company and the continuation of their fixed expenses. So, just really understanding if a company were to have a disruption, what are those financial aspects that are going to continue as well as to help make our clients whole at the end of the day?

Lew Abramson (Host) 

With the complexities in businesses today, I'm guessing that that's not an easy number to calculate?

Jessica Mizenko (Guest)

You'd think it would be. It is sometimes for financial professionals, it is. But for the majority of our contacts here at FM—which our client contacts are typically risk managers, or sometimes they're not even risk managers, sometimes they're in EHS, or they're in legal—we try to make that easy for our clients. And so, it really, truly is a, a generally simple calculation, but because our businesses of our clients are so complex, there's a lot of complexity kind of of the calculation that we need to get into to kind of help them make sure that they're getting it correct.

Lew Abramson (Host) 

[Let’s] shift into the clients a little bit. What are, what are people concerned about today? What are you hearing from the clients that you're talking to?

Jessica Mizenko (Guest)

It kind of runs the gamut. A lot of them are concerned about obviously making sure that they're being good partners with us as, as an insurer. And so, that means making sure they're accurately reporting their values, making sure they're understanding their risk, and making sure their terms and conditions are, are related to and/or equal kind of the risk transfer that they're getting. But really from our perspective, what we see a lot of clients starting to be more mindful of or ask more questions about is really kind of the business continuity space as well as the supply chain space. So, making sure that they're being more resilient, understanding the supply chains, where are their goods coming from? What does that mean from a financial perspective? Do they have backups? Their customers are coming to them, suppliers are coming to them and saying, “Hey, do you, can you prove that you have a business continuity plan if something happens to you? Are we still gonna get our goods or still get our services?” So, those are the two main focuses that we see a lot of questions come about. And that usually comes up in discussions with our client service teams, as well as sometimes we're just doing small valuation products with our, with our clients. And then they are like, “Oh, we didn't know that you had other capabilities and resources to provide these extra services for us.”

Lew Abramson (Host)

So, as you're talking to the clients and they're, you know, sort of focused on these two things, are there elements that they're surprised by? “Hey, you should look at X,” and they're a little taken aback by it?

Jessica Mizenko (Guest)

I think from a business continuity standpoint, they, our clients are either very well experienced and have teams that are able to, to do that type of work, or it's the opposite, where they just have no idea where to even start. And so, I think when we come in and say that our teams have some level of capability in that space, they latch onto that pretty quickly, right, because they just, they don't even know where to start. So, I always say business continuity is a living beast. It's because it's not a check the box type of situation. It's something that's ongoing and you need to kind of keep alive and keep steady. And I think that's probably what surprises them the most is that they don't necessarily understand how kind of much work it actually is and the resources that it takes to do it. And they're always surprised that FM has those capabilities. But I also think from a supply chain standpoint, our clients often have procurement teams, and they think they understand their supply chain. And we always say to them, "Okay, well, let's take a look at what your top suppliers are." And they say, "Well, here's my top suppliers in spend." And we always say, because we're accountants, "Well, spend's important, but that doesn't mean that they're the most important, you know, supplier from the top of the list. You could spend, right, you know, a million dollars on a, let's say some sort of widget or some sort of screw or something, but it can go into every product that then produces a hundred million dollars of revenue, right. So, there's a big difference between that level of the cost of spend of a supplier versus how much they actually support from a revenue standpoint. And that's the biggest trigger when we talk about supply chain.

Lew Abramson (Host) 

So, is that starting to get into supply chain issues where a small spend per se might stop assembly line? Even though it's just a small thing, sort of the ‘all for the want of a nail’?

Jessica Mizenko (Guest)

Yes, that's exactly right. Right, and so, it depends, right? That small thing could be something like a commodity, and so, maybe it doesn't matter because I can get it from all different types of manufacturers from all around the globe. Or it might be something that's so specialized or unique that their customer has to kind of verify, you know, that it comes from a specific supplier, and that's the only supplier they can use. And so, if something were to happen to them, you know, your company might be out of business for a period of time because there’s, you can't get that supply from that supplier.

Lew Abramson (Host)

Before we go a little further down the supply chain road, because I think that'll be its own nugget…

Jessica Mizenko (Guest)

Yes.

Lew Abramson (Host)

I wanna talk just a little bit about these companies that don't really have the internal support, you know, and, and to figure out the business continuity and how that relationship starts to work and how, how we're able to kind of find what they need in there.

Jessica Mizenko (Guest)

They kind of drum up in different ways from our perspective. So, sometimes a client will actually come to our client service team members and/or us as the business risk consulting team and sayyou know, , “We need business continuity help. We need to be more resilient. We need to build plans. Our, one of our customers has asked for those plans.” And sometimes it comes up through doing a different style of project, right? And so, maybe we're doing just something like a risk quantification, whether it be an exposure analysis or what we call a business impact analysis or BIAs for short. And, and in doing so, they're saying, they find out that these capabilities exist and they do that. And so, they latch onto it and they say, “Hey, we'd really like this support.” I think all companies probably want business continuity plans, right? They're not purposely saying, I'm just not gonna do this, right? Right? I just think it's so much work and so much effort for them that they, again, they don't even kind of know where to start. And so, a lot of the times what we come in to do is, we're either reviewing maybe plans that they already have and telling them, maybe helping identify where gaps might be, where they can make more kind of strategic plans or build those plans, make them more actionable for themselves. Or we're starting from scratch and giving them templates and/or providing them some facilitation of workshops to kind of get them started. And so, it's this teach a man to fish situation: we kind of educate them, teach them, guide them, and then we kind of send them on their way.

Lew Abramson (Host)

So, let's go down that supply chain rabbit hole. It's always volatile in the world. The past five, six years have maybe been more volatile, or do we just, does it just feel like it's been more volatile?

Jessica Mizenko (Guest)

So, I think there's always been volatility in the supply chain. What’s happening now is kind of two things. One is which, is companies are more connected, meaning getting things from different regions. They're getting global connectivity, right? They're being driven by profitability and driving down costs, right? Maybe they're becoming, holding less inventory, maybe they’re— which means they have to go to their suppliers and rely on their suppliers more. There's kind of this just-in-time manufacturing kind of style that a lot of companies are kind of leaning towards. I think the other reason is that right now, we have—and I hate to mention this, right—but we have social media and we have, the news gets to us within hours now, rather days or you know, weeks, as well as I think executive leaders around the globe are looking for answers much quicker now, too. And I, so, I think the reason why it feels like it's more volatile right now is because of the fact that we live in this kind of more digital, quick acting, instant gratification style, you know, model. And so, I think it's twofold. It’s that it always existed, but I think that driving profitability, reducing costs, global connectivity as well as, you know, that, that quick to answer kind of news is kind of driving all of that feel.

Lew Abramson (Host)

Is, is 2026 ramping it up even more? And, and what are the big, what are the big supply chain issues that we're seeing right now?

Jessica Mizenko (Guest)

I wouldn't say that 2026 is any worse than any other year. You know, I think every year and/or, you know, group of years, I would say kind of has its challenges, right? You think about something like during COVID, right, where there was a lot of kind of supply chain issues globally that were happening. And that was just because of kind of the overall economic environment of people not being able to, like, work in the factories and supply the goods and services that they need to supply around the globe. Whereas right now, everybody's working now, right? They're back to work; they're in office; they're in manufacturing facilities. But right now, we're being constrained by the movement of the product and goods, right? And so, something, you know, global current events affect that supply chain. So, whether it be economic factors, weather or climate factors, everything kind of affects the movement of goods nowadays. And so, I wouldn't say that's any more difficult in 2026. I think it's just a different style of why it's difficult and why it's on the top of people's minds.

Lew Abramson (Host)

So, with the volatility sort of almost as a constant, right, what are you seeing as far as how people are planning to move around it and, and deal with it?

Jessica Mizenko (Guest)

Well, one, I think it's just—it’s awareness, right? Is making sure that you’re aware of the connectivity that your company does have, and where those kind of key points of failure kind of could exist, right? And so, that's really just kind of looking at risk in general. And that's what we really drive here at FM is just understanding your risk and your volatility as a company. And so, whether that's supply chain, whether that's climate related, whether that's cybersecurity, whether that's, you know, the financial impact, it doesn't really matter what it is. It's really just making sure that they understand kind of what, what that risk might look like. And so, as we kind of move into the future, I say, or past 2026, I, I see clients coming and just being more mindful of the fact that of that interconnectivity and understanding and saying, “I know all of this. I have teams in place. But I just don't understand how it all relates.” Or I don't understand how to insure it. Or I don't understand what is being insured, right? And so, and how do I quantify that? And what is it worth to me? And so, that's a lot of kind of what we're hearing now is the clients understand kind of the risk is out there, but they don't really know how to quantify it or what to do with it.

Lew Abramson (Host)

Those risk managers have to get buy-in from the board, the C-suite, et cetera. Even though everybody knows that the problems are there, are there challenges in getting that buy-in? Are there challenges in getting them to, to say, “Oh, these solutions make sense?”

Jessica Mizenko (Guest)

I would argue that our risk management partners with our clients probably have the most difficult task. And I'm only gonna say that because I'm in support of them, right, and so, for all of them that are listening. But I say that because a lot of times they're battling for capital budgeting. And that capital budgeting is being asked for from all different aspects, right? So, maybe you wanna expand a facility or maybe you need new equipment or whatever it may be, new product line coming out, right? And so, you have these risk managers coming online and saying, “But I need support to help be more resilient,” whether it's physically resilient or more operationally resilient. And so, how do you give them the return on investment piece that they're battling against some other factors or some other functional areas within the company? And so, that's where our team oftentimes comes in as well, is tries to help them say, “Okay, you know, we're asking you to put in sprinklers or we're asking you to, you know, find a secondary supplier or whatever that may be, is let's kind of help you come in and build a case around that. And so, what is that worth to your company? What does that mean? What is the risk that you're transferring to your insurer, but what is the risk that you're actually still taking on as well and keeping? And making sure that they can use that as part of their, their ROI, you know, discussions with their, their C-suites.

Lew Abramson (Host)

So, is it, is it sort of a negotiation between the, the shiny growth that everybody wants and protecting what you already have?

Jessica Mizenko (Guest)

I think it's a good, nice balance between the two, right? And so, a lot of, some of the quantifications that, that our team assists with is truly what we call that, that return on investment, for lack of better terms; but really what we're looking for, or looking to help our clients with is, you know, understanding their current capabilities, understanding their current, their risks, quantifying their risk. What does it mean to them? How much is it worth to them? But what we really try to do is also be that trusted advisor and saying there's a lot of risks that you're not transferring to FM or an insurer in general. And so, those risks could be missed growth opportunities because of a disruption. That could be your investors are seeing you as more risky, right? So, maybe your cost of capital changes because of a big disruption. Your customers and the marketplace is changing, right? So, maybe your customers are less, maybe, sticky because you have a disruption, right? So, we're looking at all different sorts of things to help our clients understand what that risk really looks like and making sure that they're, they’re making decisions not just based off of the risk that they can transfer, but the risk that they also have to absorb themselves.

Lew Abramson (Host)

What are some of the changes that you've seen in how losses are actually happening and how businesses are recovering? Where are the, where are the breaks in the assumptions?

Jessica Mizenko - GUEST

A lot of the assumptions we—I think that people think they have is that they have mitigation, right? And so, a lot of our—we'll hear a lot of clients and a lot of insured say, “Yeah, I think we can make it up. If we have a loss at this facility, we can make it up at a sister facility,” right? Easy peasy, no big deal, we’ve got it covered. And then our teams will go in and have conversations with their, not just their, their C-suite kind of level, but really the operations level and say, let's really talk about what that mitigation means, right? And so, maybe somebody from a high operation level said, “Yeah, I think our sister plant can do it.” But then when you go talk to that sister plant, that sister plant says, “Whoa, whoa, whoa, whoa, whoa.” They're like, “We could do it, but it would take this amount of tooling change, and we'd need extra labor to do it.” And there's a qualification time involved in that, right? So, so, it changes the way they look at what that ability to mitigate might be. And it's because they just haven't thought about all the factors, because either they don't have a business continuity plan or they've never run through the kind of the idea or the, the, the process in which it would be involved in that claim.

Lew Abramson (Host)

Once you start to put it all on paper, the flaws start to become a little more evident?

Jessica Mizenko (Guest)

That's correct. Once you start putting dollar value to it, those problems start to become a little bit more evident.

Lew Abramson (Host)

As you're looking at a business with multiple factories, multiple locations, does anything come into play where one location, one factory, is more key to the entire output than others?

Jessica Mizenko (Guest)

Yes. So that's—I'll kind of give you an idea of how the kind of risk quantification looks a little bit. And so, what we typically start with is that valuation, so that kind of underwriting piece that our clients have to do to kind of, you know, get the coverage that we provide to them. And that's really just what we call BI value or business interruption or business income value. And that's really just essentially equivalent to your gross margin. I'm gonna make it easy for all our listeners now. It's essentially equivalent to your gross margin. But what we do from a risk quantification standpoint is we risk adjust that number, right? And so, we risk adjust that number for what we call interdependencies, which is kind of what you were just speaking to, right? Is that interconnectivity between all our facilities. And then we risk adjust that number for how long that downtime might be, based off of our engineering services. And then we risk adjust it again for how much mitigation our clients might have and what the cost to do that mitigation might be. And then we risk adjust it again, based off of customers and how they behave, right? And that interconnectivity is the core piece of it, right? And, and that's because you can have a—and I'm gonna give you an example here, right? You can have a manufacturing firm that makes, let's say, a million widgets a year, okay? And you sell them for $50 million, okay? You sell half of them for $50 million. That's your revenue, right? And so, but the other half of them goes to a sister facility down to be, continue down the process and make something different, right? And so, if you were to look at the financials of a company and say, “What is this, you know, location A, what is it worth?” Somebody would just say it's $50 million, right? But at the end of the day, it's not, because if they're selling the other half of what they're making, putting into something and then selling it for $500 million, that first location that we were just talking about is actually, has much more value, right? Much more valuable to the company than just that $50 million of what they've sold, right? So, on paper, it's different than what it actually is.

Lew Abramson (Host)

So, what, what looks like a $50 million risk is a $550 million risk. 

Jessica Mizenko (Guest)

That is correct. 

Lew Abramson (Host)

Because you're, you’re feeding the next plant that makes the bigger widget.

Jessica Mizenko (Guest)

Yep, that's exactly right.

Lew Abramson (Host)

And once people are seeing that ROI, are we getting a lot more buy-in? Because I mean, I don't have a $50 million plant, but if I did, and somebody showed me it was $550, I'd be really nervous really fast.

Jessica Mizenko (Guest)

Yes, I think our clients are pretty savvy that they understand that that risk exists. And I think they understand the interdependencies that exist between their facilities, for the most part. I think they the, the, what I call the physical interconnectedness exists. And they know that that value is something more than maybe what just might be on paper. But I do think sometimes that they are often surprised at how much risk it is, right? And so, it's either because of how much value it supports, or maybe the lack of mitigation that they thought that they might have. 

Lew Abramson (Host)

Are you seeing changes in how businesses are recovering if they’ve done some of this versus those that haven't?

Jessica Mizenko (Guest)

Overall, maybe as FM, because we have less risk losses, that I would say yes, maybe is because of the business continuity and recovery that our clients are kind of taking to the forefront and, and doing something about. When we go in with our clients and have conversations about mitigation and our capability to recover and build plans, you know, you'll oftentimes hear people say, “We'll get it done,” right? “It's in an emergency. We have to keep this plant running, and we have to keep these operations running for our clients, for our consumers, like, for our reputation. We have to keep it running; we'll do what we have to do.” I know that's the case, right? I worked on the other side of it, post-loss. I see people sleep at their facilities for weeks on end after disruptions and, you know, work 16-hour days, and we know that they'll do it. From an insurance standpoint, when we are helping our clients and their service teams—because at the end of the day, we're taking that information and we're, we’re, we’re understanding the risk because that risk is being transferred to FM—we need to make sure that we have a level of confidence in the fact that they are able to do it. I think they're scared by the economic environment, right? I think they're scared by suppliers being shut down or their plants being shut down, for any number of reasons. A lot of people are to say, “We're fine. We're well protected.” But I hate to say this, but things happen, right? And so, gonna get it done, right? And so, whether it's written on paper or not, they're probably gonna get it done. It's just a matter of whether they can get it done faster, in a more process-oriented way. And I always say, if you lose key people that understand what they're going to do and something were to happen to them, then nobody knows what they're gonna do, right? And so, that's why we always kind of preach this idea of business continuity planning, not only, it's all in everybody's head. It exists in everybody's head. Everybody knows what they're going to do. Our job is to really just facilitate, ask the right people and put it all into one area where all that information is then somewhere where somebody can access it.

Lew Abramson (Host)

Once some of the shortcomings have been exposed, do companies end up more confident? 

Jessica Mizenko (Guest)

It’s a little different every, every time. And so, I think if you're doing just a risk quantification, right, I think—the majority, I think, of people that get that risk quantification done, whether it's through our services or some other services that exist out there, is it’s the more knowledge you have, the more that you can do. And so, I do think that there are some instances where people will get scared. They're like, “Oh, I didn't know the number was that big.” And they're, “I don’t, I didn't need to know that, and that scares me.” I think that's very few and far between when you, when you put the dollar value on it. I think most people are saying, “Oh, now I fully understand what that risk is. I fully understand what that risk is to my bottom line. And now I can translate that and, you know, let my C-suite know what this really, why it's so meaningful, how it's so impactful to the business.”

Lew Abramson (Host)

How are we identifying risk and categorizing it for the client? What's the process?

Jessica Mizenko (Guest)

It's facilitation. So, when our teams come in and talk to clients, really what we're doing is trying to customize the work that we're doing, right? So, we're trying to say, what is it that you're trying to identify or understand? So, maybe it's one facility. Maybe it's one process within the facility. Maybe it's they wanna understand what their backup you know, capabilities are and what the, what the quantification behind that is. Maybe it could be a climate-related risk. It could be a cyber-related risk, right? So, really what we try to do is understand exactly what the risk that they're worried about is, and then try to figure out and customize a plan of action to figure out how are we going to quantify that for them? How are we gonna put a dollar value to that so that they can bring it to their Exec team or C-suite team and say, “Hey, this is important to us, and this is important to us because of XYZ, but also it's worth XYZ as well.” Really all it is is discussion and then pinpointing based on that discussion, customizing what the client needs.

Lew Abramson (Host)

What are some of the examples that you've seen over the years of risk exposures that weren't well understood? What are the, what are the smaller things that had much bigger impact than people realized?

Jessica Mizenko (Guest)

I can give you two examples specifically and kind of more recently. Is one, is we've done a supply chain analysis where we've quantified the risk of top tier suppliers for our client. And they knew they had a sole source supplier, but what they didn't realize is how much revenue was generated by using that supplier. And so, they went through, we went through the analysis, found out how much it was worth to them, and then they said—they ended up actually buying the supplier. So, several months later, they ended up going in, doing their due diligence from an M&A standpoint and acquiring that supplier and saying, “Well, now we want to bring it in house. We want to make sure that we can control the supply of those goods.” And so, they've done that. So, that's, that’s, like a really big example of where the risk quantification has really aided in the understanding of the business and the operations for our client. And I'll kind of go the opposite direction where a lot of what we do is in support of risk improvement from an engineering side. And so, we're trying to provide the opportunity and that risk return on investment for our risk managers and our client teams. What does that mean to them from operational standpoint? And so, we've had a couple clients in the past—we've asked our clients maybe to do something like a flood wall or something like that, right? And so, we've gone in and done the risk quantification for them and done a return on investment kind of calculation, understood what the impact is from a missed growth opportunity, how it might impact the customers as well as their investment into it. And so, and they've used that as an ROI to gain capital improvement budgeting to be able to get it done.

Lew Abramson (Host)

What are some of the most surprising hidden dependencies you've found?

Jessica Mizenko (Guest)

I, I think some of the unique ones that I've seen, admittedly, is based off of people. You know, oftentimes, people think about dependencies in terms of, I'm dependent on another facility, or I'm dependent on a piece of equipment. Oftentimes, what people miss, really, is their dependence on maybe somebody's brain. There could be one person that's worked at a facility for, I'm just gonna say 30-something years, and they're the only person that can run this specific machine that's, you know, 100 years old, right? And so, when you start asking those questions, they know that person's important, but then you ask the question, “Okay, well, what are you doing to help mitigate the loss of that person when they retire?” Right, like that person's going to retire sometime. They're not gonna work until they're 100 years old, right? And then they say, “Well, you're right. Maybe we should—we've been thinking about doing something about it, but we haven't enacted any plan.” And then we always say, “Why not?”. We're asking the question. You’ve thought about it, but why aren't you doing anything about it? And so, sometimes it's just the spark of that conversation where somebody else from the outside is coming in and telling them, why not? Or maybe you should. And then that sparks them to take action.

Lew Abramson (Host)

For businesses that haven't really looked into this yet or know that there's a problem under that piece of paper on the desk that they just don't wanna lift up, what’s the one big takeaway, the one big piece of advice you wanna give them to say, "Hey, now's the time"?

Jessica Mizenko (Guest)

Well, I think now's the time because it’s still kind of falling under the radar. I think people know that being resilient is important; but I still think that there's a lot of opportunity in the marketplace across all industries. And so, if you want to be prepared for uncertainty and be more resilient, and recover faster than your competitors, that's what I would say is, that's where you want to action now. The marketplace is becoming harder and harder. Profitability is difficult to obtain and withstand, and depending on your industry, that the competition is pretty harsh out there, right? And so, I would say is, if you want to become more competitive in the marketplace, I would say then resilience is where you need to take action. And so, you need to be able to recover faster than maybe your competitors can recover. And the reason is, is because if you can't, those competitors are gonna take your market share. It really is about maintaining the, your ability kind of just to perform in any situation. It's proving to your customers that you can do that. It's proving to your suppliers that you can do that. And so, I think it's resilience all around kind of just allows you to show the marketplace in general that you're prepared for anything that can come your way.

Lew Abramson (Host)

Jess, thanks for being here today. For people interested in learning a little bit more about business interruption, what's a, what’s a good resource?

Jessica Mizenko (Guest)

So, for those FM clients that are out there listening, they can reach out to their client service teams and connect with us. For those that are non-clients, you can go to fm.com and search business risk consulting. Any one of you listening out there can search me on LinkedIn and connect there if you'd like.

Lew Abramson (Host)

Excellent, thanks. We'll put links to all of those places in the show notes.