Meeting the Risks in War

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The cry of “supply-chain issues” to explain material cost increases and delays has been common during the COVID-19 pandemic. Since February, however, a new element has entered the picture: war in Ukraine. Considering the large number of first and second-generation workers with ties to Ukraine and Russia, the daily news of the war will have personal impact on many crews in the field as well as in the offices of construction companies across the globe.

Employee safety should be the first concern during times of war. While many organizations narrowly focus on physical safety, it’s important not to overlook how geopolitical shocks might impact employees’ mental and emotional well-being. They may have family in the affected area, connect the situation with past trauma, be challenged financially by sanctions, or see existing mental-health conditions exacerbated. Especially when you look at a holistic picture of well-being, even the safety of those employees who aren’t physically located in the affected areas is not ensured.

Global construction organizations need to prioritize employees who live or work in Ukraine or nearby regions and face a physical threat. Consider using third-party safety and evacuation services to extricate them. And, no matter the employees’ location, remind those struggling with mental and emotional health during these times of EEA (employee assistance programs) that could be of use.

Russia’s invasion of Ukraine has altered the emerging risk landscape, as well, and it requires ERM (enterprise risk management) leaders to reassess previously established organizational risk profiles in at least four key areas, according to Gartner, in several new reports including Resources for Executives and Their Teams Amid Russia’s Invasion of Ukraine, has identified four major areas of risk that ERM leaders should continually monitor and examine their mitigation strategies as part of a broader aligned assurance approach as the war continues:

Supply Chain Risk–Supply-chain risk should be freshly evaluated and efforts made to identify and limit any individual supplier dependency. ERM leaders should ensure that their organizations have updated supplier contingency plans in place that reflect the current environment. Longer-term, ERM leaders should lead discussions on how their organizations will cope with the potential for key materials shortages, higher expenses, and assess alternative logistics options for obtaining materials and critical components.

As inflation and supply shortages are projected to continue, SCO (supply-chain officers) must adopt resource conservation strategies to mitigate risks to their organizations, according to Gartner. In an environment of constrained supply, SCOs must capitalize on the potential value of waste and debris while seeing it as an asset.

Capitalizing on value can be achieved by building ecosystem partnerships with waste contractors, suppliers, and innovators. With new legislation being passed around producer responsibility and changes in waste regulation, waste will be increasingly seen as a liability–when it could also be a resource. SCOs need to shift their strategies to encompass waste streams, and gain control so that waste materials can be used effectively.

Natural capital is the stocks of geology, soil, air, and water that organizations rely on for production of materials. Without stocks of natural capital, supply chains would not function. However, natural capital is viewed as an externality – no one pays for it. SCOs must shift their relationships with natural capital and focus on activities such as reducing biodiversity loss, fighting deforestation, or exploring regenerative agriculture.

Talent Risk – While organizations’ first order of business is to address the health and safety of employees directly affected by the war, there are many second and third order effects that could impact employee well-being at this time. Employees across the globe could have family and close friends at risk in the region. Internal communications addressing employee well-being and outlining counselling services will need to be carefully calibrated and distributed at a higher frequency. At an organizational level, talent risks can manifest through productivity constraints in the affected region, as well as disrupting access to the large amount of IT talent concentrated in the countries impacted by the war.

Cybersecurity Risk – The potential for increased cybersecurity attacks during this time means that the frequency of tabletop exercises should be increased, as well as ongoing review of protocols to defend against ransomware and other malware attacks. Gartner research previously identified new models of ransomware that defy typical mitigation strategies as a key emerging risk impacting organizations. As a result, it’s more critical than ever for ERM leaders to lead the business in clearly defining their high-value assets and have a response plan in place so that triage and decision-making are not made on the fly during an attack.

Financial Risk –In the event of directfinancial exposure to Russia, ERM leaders should be in close communication with third-party service providers on how best to provide and receive alternative payments that do not violate current sanction policies. Beyond direct exposure to the region, the war is likely to continue to raise key commodity prices and be a driver of inflation.

As a result, financial models for raw materials will need more frequent updates, while currency and interest rate impacts will likely be more volatile this year. ERM leaders should coordinate with peers across assurance functions to analyze financial risk information and prepare mitigation strategies at more frequent intervals in this environment.

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