Helping Risk Managers Speak the Language of Business

The following article is based on a discussion between Kerry Balenthiran, FM Global's operations vice president, group manager, business risk consulting (EMEA); and Fredrik Finnman, vice president, group risk management and Peter Lehnbom, group enterprise risk management manager at Sandvik Group.

Recent years have seen a period of increasing economic, social, and political uncertainty wrought by a pandemic, increasing climate risk, and global conflicts. This uncertainty is apparent in the FM Global Resilience Index, which highlights the vulnerabilities of supply chains and what countries or territories can do to provide greater resilience. Another resource available to organizations that want to understand the complexities of their global supply chains is the Business Impact Analysis (BIA). The BIA is a service offered to clients by FM Global's Business Risk Consulting team.

Thank you for talking with me about the BIA. Can you tell me how your journey using this service started?

Discussions around the BIA were part of our day-to-day interactions with FM Global. We've been working with FM Global for 20 years, and as we've integrated new facilities, FM Global has been there to provide risk mitigation support and solutions—one such solution being the BIA.

Taking a step back, what are the main supply chain issues you contend with?

At Sandvik, we have a complex supply chain operating across 150 countries where a key element is the provision of metal powder—essential in the manufacture of high-quality metal cutting products. There was exposure along the supply chain, both in the over-reliance of a supplier and exposure 'downstream,' which had the potential to impact that supply.

The complexities are linked to the product itself. At Sandvik, we require a very high-quality product, not readily available or easily replicated. This means there is a relatively high level of risk to the supply chain as we prioritize quality over quantity. One of the main concerns was the shortage of alternative makeup and difficulties in locating alternative suppliers to cover any disruption.

How did the BIA work, what was the process?

The process of the BIA took around six months. We began the process in late 2020, so part of the process was undertaken during the COVID-19 pandemic and restrictions—which brought its own challenges. The FM Global team looked at what would happen should our main supplier experience an issue that impacted on that supply. How would this affect business areas, production units, our ability to manufacture and sell our products?

What FM Global sought to do was to understand the value of the whole supply chain—end-to-end—rather than focusing on one facility.

What did the BIA and FM Global allow Sandvik to do around this supply chain complexity?

As risk managers, we wanted to quantify the exposure, which is often a difficult thing to do accurately and confidently. It requires a blend of business, financial, and engineering experience—offered together in very close harmony—which is what FM Global offered. 

Having a financial figure on the exposure is essential to correctly determining the appropriate level of insurance protection and helps risk managers communicate the business case for capital expenditure on risk mitigation strategies. Equally important, it then highlights the return on investment of this spend. By investigating and validating the risks in a quantifiable way, the BIA provided by FM Global enabled us to speak the language of the wider business. It made the risk management team more confident in clearly painting the risk picture to the rest of the business.

Can you explain a little more the importance of having a quantifiable figure on exposure and the decisions it helped bring about?

By having the financial exposure of the supply chain, the risk management team was then able to provide a cost of inaction as well as a return on investment of any mitigation strategies. What makes the difference in those conversations is being able to give a quantification of the risk confidently and accurately—this gives us the traction we need to build resilience across the supply chain. Being able to have these conversations has really enhanced the relationship between the business and risk management.

One practical decision the business made following the BIA was to invest in sprinkler systems at one site, a significant amount of capital expenditure. There are two further investments being made now across the supply chain because of FM Global's BIA.

Thank you very much for your time in speaking with us today. It's interesting to hear how a BIA can enhance relationships, and I think what you said about "speaking the language of the business" is very powerful.

All those who work in risk management understand that the ability to make the case for expenditure is becoming increasingly scrutinized and spend must provide a suitable return. Anything that helps meet this challenge for risk managers is only going to become more and more valuable in the difficult months to come.

Related content:

Protect Complex Supply Chains from the Changing Climate

6 Key Facets of Current Global Supply Chain Strain

Special Report: Supply Chains

How Business Impact Analysis is mitigating risks in complex supply chains