Build Magazine July 2015

Build Magazine 51 Russell Kirby examines how to reduce the risk of physical damage to commercial property. Additionally, at FM Global we have discovered that the average risk of a property loss is 20 times larger for com- panies with weak physical risk manage- ment practices than for those with strong physical risk management practices. Factoring in the financial costs of these losses indicates that the average loss at a location deemed to have weak physi- cal risk management practices exceeds US$3 million, compared with approxi- mately US$620,000 for a company that manages its physical risks well. Having a resilient business can also lead to competitive advantage. For example, back in 2011 analysts gave the floods in Thailand as the primary reason for Seagate Technology recapturing the worldwide lead in hard disk drive shipments from Western Digital in the last quarter of the year. Seagate located their HDD manufacturing plant on high ground, and as such, were less adverse- ly affected by the floods and able to con- tinue business as usual and as a result gain the market leadership position. Understanding the key areas of expo- sure for a business, when it comes to a new property project or retrofitting an existing one is a joint effort between all parties involved. However, it’s the role of a proactive insurer to help in the identification and management of risk in a collaborative manner with a client, recognising the needs of the business and the client’s business priorities. At FM Global, for example, we are able to demonstrate to clients where they are most likely to suffer a property loss and what the business consequences of this loss will be through a tool we’ve developed called RiskMark. The tool provides a quantitative assessment of risk for each location our engineers visit (around 60,000 locations per year), and factors in fire risk, equipment hazard risk, natural perils, organisational risks, and specific occupancy risk. This in turn, helps clients decide where best Smart businesses take loss prevention into account during the early stages of specification, design and construction in both new projects and regenerated buildings. Beyond meeting the mini- mum codes and standards, they make planning decisions that are functional for their needs and best protect their people and assets. Resilient businesses go a step further. During the planning or retrofitting process they aim to ask and answer questions, such as: what is our objective in terms of business continuity? How resilient is our building and business should a loss occur? And how can we avoid a big incident in the first place, so that we have a business to go back to in case of a disaster? These businesses know that insurance helps alleviate some of the cost associ- ated with property damage, but it isn’t the only answer, especially considering the loss of customers, productivity, goodwill and staff. They also know that businesses that are able to avoid substantial losses will outperform com- petitors and create real and sustainable competitive advantage. In fact, a study commissioned by us, looking into FORTUNE 1000-size companies, showed that businesses with strong physical risk management practices, on average, produced earn- ings that fluctuated by roughly 18%, whereas those with weak physical risk management practices, on average, had earnings that fluctuated by about 31%. to prioritise their risk improvement budget, and pinpoint critical proper- ties in terms of revenue impact. Once there is an understanding of the key areas of exposure, businesses have to think about the practical steps that need to be taken to incorporate resilience within the stages of specification, design and construction in both new projects and regenerated buildings. From a capital investment point of view, managing changes within a new building is, of course, easier than within an existing one. However, the approach to ensuring resilience should remain the same regardless of the type of project or the type of risk. The following key questions need to be answered: Where is the location of the building and what are the risks associated with it? In the UK, for example, one of the natural hazard risks that are most prevalent is flooding. Facilities located in a published flood zone are five to seven times more likely to experience flood caus- ing damages of £50,000 or more, than to suffer a fire or explosion of a similar magnitude. Our research shows that if you are unprepared, a flood could cost your business an average of £2.1m in property dam- age. It is critical to be aware of how much warning time you may have, how deep the floodwater is likely to get, what the impact of fast moving floodwater may be and how long it will take to recede. Last year significant parts of the country were affected, in some way, by flood. Prior to 2014, we worked with a client who was planning to relocate their divisional head offices and data servers within the Thames Valley – one of the areas most exposed to flooding. Jannis Tobias Werner / Real Estate