Responding to a Changing Risk Picture in an Economic Downturn
By: The Security Executive Council
Key Business Assumptions Senior Executives Will Focus OnThe first assumption and probably the most obvious, is lower sales and revenue for many companies. There will be pressures for capital and expense cost reductions including postponement of investments, the hiring of new employees, and an in increase the termination of existing employees.
There will likely be instances of negative earnings compared to previous quarters. It is critical to understand the earnings assumptions for your company - earnings are the key fundamental measure by which Wall Street evaluates a publicly traded company. Not for profits and NGOs are judged by cost of service. The issue is where your organization’s earnings are projected. As senior executives are confronted with diminishing earnings there will be tendency to reforecast and potentially a need to accept more risks; especially in areas where risk probability is low or were the cost of mitigation programs is high.
If the company is in a highly regulated sector, it will could be impacted by legal requirements that mandate security program requirements. Mandated compliance programs costs cannot easily be reduced or eliminated in any economic downturn.
There will likely be reductions in business related travel. Fewer employees and contractors traveling may reduce the costs related to employee protection programs. Critical questions include determining the current status of employee travel in your company for the next year and if your program has a variable cost element that would allow for cost savings.
If you manage a security program that involves due diligence of pending merger and acquisition targets, you need a clear understanding if your company’s near-term business plans will reduce or expand this activity.
Finally, favorable trends like lower crimes rates in robust economies will likely reverse and trend upward. Examples include crimes against persons and property, insider risks issues involving diversion or theft of assets, intellectual property (including sales and marketing plans, customer lists) - the list is extensive. In addition, many sectors will likely see an increase in counterfeit activity as affordability for the genuine article diminishes while demand can remain high.
Risk ImplicationsFollowing are a sampling of security areas that may be impacted by a downturn.
Investigations are a core security service for most organizations. Two critical issues: First, will the company demand for investigations increase or decrease in a downturned economy? And second, is your department correctly resourced to meet the demand. One issue to consider is an increased demand for investigations with reduced resources. If an increase in resources is obtained based on demand, does the competency or skills needed to do specific investigations exists within your department or need to be changed.
Investigative metrics are essential in making any business case presentation to senior management: financial losses, cost of investigations, frequency of occurrence per 1000 employees, trending data, all help business leaders understand risks and tradeoffs. Also, if necessary, separate regulatory or compliance required investigations from discretionary investigations to identify what is required from what is desired.
Outsourcing, downsizing, layoffs and general business contraction will contribute to elevated stress at work and at home and may result in increased workplace hostility and potential for violence. Disgruntled employees or contractors with varying levels of access may take advantage of that to do damage or compromise assets in their trust.
Security’s risk assessment process may reveal vulnerabilities exploitable by knowledgeable insiders and outsiders with access. This is especially true for business processes targeted for resource reductions. The level of interaction between security, compliance, human resources, legal counsel and business unit leaders should ensure knowledge of risk trends, including indicators of increasing workplace hostility.
People and Property Protection
Management may ask “Since we are reducing our headcount and space, why are you pushing back on reducing your security operations staff?” With an increased potential for property crime, reduced police presence, and workplaces offering targets of opportunity, premises liability risk is likely increased. Security operations teams are our first responders and their relative availability can be even more pronounced when external public safety-first responders are simultaneously cutting back; potentially resulting in significantly increased response times and perceived Duty of Care service deterioration.
Mergers & Acquisitions
Many companies grow through mergers and acquisitions. Generally, such activity for companies is to engage using credit or their own stock if the market multiple is high enough. Many companies have their security departments involved in due diligence programs to understand the potential acquisition in terms of risks issues. Risks issues can include reputational concerns, legal/compliance issues, and issues of leadership and ethics. In a similar way, many companies are potential targets of acquisition and concerns over the protection of sales and marketing plans, key financial data, strategic plans are critical to minimizing what be known about the company besides regulatory reporting.
The critical issues in this area of security are to understand the business direction your company will assume given a potential turn of the economic climate. If activities will be curtailed, then budget and personnel realignment may be required. If there are significant opportunities for M&A, the company may become more aggressive requiring additional resources. Ask yourself, what would my company do? Will it be aggressive or defensive plans? Develop security plans based on those business assumptions.
Questions to Ask Yourself and TeamBefore a potential recession hits here are some things to think about in advance:
Next StepsThe Security Executive Council consists of thought leaders in the realm of security and risk mitigation. We have the experience that can help your organization weather turbulent financial headwinds. Contact Us to discuss your situation and find out how we can assist you.
For more resources on this topic see Security Program Strategy & Operations: Strategic Planning/Management
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Copyright Security Executive Council. Last Updated: January 16, 2019
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