Plan Before the Lights Go Out
This article appears in our Q3 2022 issue of Finance Transformation Magazine. To download the issue, click here
Michael Walford-Williams, Managing Director of Westbourne, a risk management consultancy specialising in business continuity and crisis management, explains the importance of contingency planning for the lights going out this winter.
What would happen to us if we lost power for 3 hours at a time? That's the question many businesses are now asking themselves as the country faces the very real risk of power supply issues and even blackouts across the UK this winter. The extent to which businesses are impacted depends on what they do now, before the lights go out.
Defining Power Supply Issues
Due to the Russian invasion of Ukraine, there is "a significant risk that gas shortages could occur during the winter 2022-2023 in Great Britain"1 according to Ofgem. This could lead to an electricity supply emergency in which measures may need to be taken to reduce the UK's total energy consumption.
National Grid have outlined several emergency measures that may need to be taken to ensure the integrity of the electrical system in Britain and to essentially keep the lights on. These include interrupting supply "to some customers for limited periods of time in a managed and controlled manner"2 in which some areas could be without power for up to 3 hours.
Offices and workplaces could be left without power and some businesses, especially energy intensive industries such as manufacturing, chemical industries, primary metal production, food production, logistics could suffer service degradation. This combined with already rising energy and fuel costs may cause some businesses and industries to struggle financially, causing them to struggle with financial obligations and in a worst case, insolvency.
Crisis Management Response
Depending on the scale and complexity of your organisation, this could be as easy as putting one person 'on point' for monitoring the situation, to creating a full crisis management task force.
Established crisis management teams are often used to managing high impact incidents which are generally short-lived (loss of building, data centre failures, cyber attack etc.) and which can be stood down once the immediate threat is under control and the organisation can operate 'normally'.
Global Pandemic Lessons
Power outages, however, are more of a 'creeping' scenario, which call for a different approach and many businesses should look to lessons learned from the Global Pandemic for how to prepare. In the pandemic, firms had to constantly monitor evolving situations and adjust their plans - often weekly.
The best firms established principles which included, agreeing trusted sources of information, and setting out various trigger points at which the next phase of the plan would be activated.
Establishing governance is also crucial. Setting out who is responsible for managing the situation, what resources they will draw upon, how they organise themselves and make decisions was often the difference between success and failure. Frequency of internal and external communication is an essential, but often forgotten step in the plan.
Immediate Practical Actions
1. Manage Working Capital
Organisations should look to identify high risk debtors who may be prone to late or missed payments or in a worst case, default entirely due to insolvency. A client analysis by sector, to identify those that are likely to be most affected and take measures to ensure payments is also helpful. To reduce financial exposure to these clients, organisations could consider incentivising early payment, possibly through a discount on the outstanding invoice.
Organisations should also continue to look at mechanisms to hedge against rising energy and fuel prices and potentially further European currency fluctuations that may be aggravated by power and fuel cost instability.
2. Assess Energy Usage
· Assess energy usage footprint in terms of how much energy each location uses and especially where they are reliant on gas for either a) electricity or b) heating.
· Consider current capabilities and any resilience measures already in place such as UPS (uninterruptible power supply) and generator power.
· Understand what buildings, floors within buildings, and systems are covered by UPS and generator power.
· Use this information to prioritise energy reduction measures and increase levels of resilience (e.g. UPS and generators) as needed.
3. Reduce Energy Consumption
Home Working - Households are likely to be impacted by potential power outages as well as offices, but home working can lower the fuel consumption of central offices significantly.
Power down non-critical systems in data centres - Power consumption in data centres can be reduced by powering down non-critical systems, either proactively or reactively to energy shortages. If this is to be done reactively, systems and trigger points for power-down should be identified in advance as part of a response plan.
Office temperature reduction - Reducing heating temperatures by just 1°C can cut fuel consumption by 8%3. Particularly for larger offices, heat reduction and re-distribution throughout the building can result in significant energy savings.
Leverage other UK and global locations - At present in the UK, the National Grid plan only envisages scheduled outages in blocks of up to 3 hours in various areas of the country on a 'rota' system so that not all areas are affected concurrently. This means some resilience may be achieved by splitting key operations between locations within the UK.
Global organisations can also look at their global locations and seek to move critical operations either fully or partially out of the UK or further afield outside of Europe to achieve more resilience.
4. Suppliers and Critical Third Parties
Organisations should risk-assess third parties based on the type of service they provide and their geographical location to understand those that could be most affected. This information can form the basis for further actions including:
· Reaching out to third parties to find out what measures they are taking to ensure service through the winter
· Where organisations have outsourced technology to cloud hosting providers including the tech giants, AWS, Google Cloud and Microsoft Azure ensure that you understand the physical locations of where the servers are located, including where they are split across 'availability zones'
· Cloud providers located in a single location in the UK or Europe are at an increased risk of power issues. Organisations could investigate making use of out of region replication and disaster recovery options. For the tech giant cloud providers, availability and security of systems and data is their core business and will have a good amount of resilience in place, however they are not infallible as a number of recent issues have highlighted4
· Look at where reliance on a single supplier can be reduced by spreading service across other existing, or new suppliers.
This winter is likely to be challenging for businesses across the UK, but by putting in place good contingency planning you can ensure that your business will still shine brightly, even when the lights go out.
About the author: Michael Walford-Williams
Michael is Managing Director of Westbourne, a risk management consultancy specialising in business continuity and crisis management. Working globally with companies ranging from start-ups to some of the world's largest organisations he has more than 15 years' experience helping companies plan for and manage disasters. His company Westbourne now helps companies across multiple industries manage risk in a world of ever changing threats.