These are the risks factors that are weakening Australian businesses, according to an expert

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This article is sponsored by FM Global. Read more here.  »

As Australian businesses face a new set of threats created by the COVID-19 pandemic, it’s important to assess how they can maintain their resilience.

Whether it’s starting a new business, or expanding a current one, making strategic choices that will help your business remain strong is more important than ever. One way to check is FM Global’s Resilience Index, an online tool that uses compiled data for almost 130 countries to rank the resilience of their business environments.

To better understand the data presented by FM Global’s Resilience Index and how it can be applied, we spoke with Lynette Schultheis, the Operations Manager for FM Global Australia.

What is the FM Global Resilience Index?

Updated annually, FM Global’s Resilience Index is a tool that provides information regarding a country’s resilience, which is analysed according to 12 drivers that are split over three categories. These categories and drivers provide data relating to a country’s relative commercial and industrial property risk, political and macroeconomic influences, and the quality of their supply chain. Broken down, these categories are:

  • Economic: Productivity, political risk, oil intensity, urbanisation rate.
  • Risk quality: Exposure to natural hazard, natural hazard risk quality, fire risk quality, inherent cyber risk.
  • Supply chain: Control of corruption, quality of infrastructure, corporate governance, supply chain visibility.

The Resilience Index provides an overall ranking and score for almost 130 countries, with separate rankings for each category. For example, a country like Singapore has an overall ranking of 22. Under its individual categories, Singapore is ranked first in supply chain strength, but 37th in economic and 42nd in risk quality.

How can the Resilience Index be used by businesses?

According to FM Global, the Resilience Index can be used by companies to help “evaluate regions, site business operations, select partners and make more informed strategic choices” when it comes to evaluating and managing the potential risks of their business strategies.

By using the index, companies can make an informed choice when it comes to making important decisions that can affect their market share and growth. By being more resilient, a business is more likely to maintain their overall value when affected by economic, social and environmental factors.

An example that Schultheis uses is that if a company is caught between two international suppliers and they aren’t sure which one to take up, they can use the Resilience Index to compare the two countries.

“You can use it to evaluate your current supply chain,” Schultheis explains, “If you’re considering expanding your operations, you can assess where you already have suppliers or where you’re considering a new one.”

“One could be cheaper, but their resilience could be incredibly low. I’d lean towards the one with a higher resilience score because they’ll be around when you need them.”

What does the data say about Australia?

Australia’s current overall score is 90.1 out of 100, and we’re ranked 17 out of 130 countries. This puts us on roughly equal footing as countries like Canada (90.2), New Zealand (90.5), France (90.7), Ireland (90.8) and the United Kingdom (90.8).

For the individual categories, Australia is ranked 18th for economic, 22nd for supply chain and 10th for risk quality. In terms of individual drivers, Australia has done well when it comes to fire risk quality (7th), the control of corruption (14th), natural hazard risk quality (15th), supply chain visibility (22nd) and the quality of infrastructure (31st).

Looking at the scores and rankings for the last five years, Australia has maintained a consistent placement. In 2016, we were ranked 14th overall with a score of 91.

What factors affect Australia’s ranking?

As bushfires are a major natural disaster in Australia, it makes sense that fire-resistant building codes have been greatly enforced, leading to a high global ranking. The same can be said about our overall ability to weather the effects of natural hazards.

The general operation of businesses are also able to be maintained due to Australia’s overall infrastructure when it comes to transport, telephony and energy, being consistently good.

With that in mind, Schultheis also notes there are a few drivers that could do with some strengthening. Our oil intensity ranking is 93 out of 130, so we’re quite vulnerable to an oil shock caused by shortage, disruption or price hike.

Australia could also look to improve in the influence of corporate governance (41st), which is scored based on “the strength of auditing and accounting standards, conflict of interest regulation and shareholder governance.” Our vulnerability to cyber attacks is also middling (48th) – but there’s potential to improve.

“Especially during COVID, you’ve noticed that there’s been a surge of cyber attacks,” Schultheis said. “There’s been breaches of security caused by working from home, because it’s just not as secure.

“If Australia could become more strenuous or resilient in their cyber resistance or cyber security, I think that would definitely elevate their ranking.”

Schultheis also points out that the overall ranking of Australia – and every other country listed – is relative. In other words, our placement could increase because we’ve strengthened our individual drivers, or it could increase because another country’s have weakened.

By using the Resilience Index as a guide, Australian businesses can make an active step to strengthening their resilience while also making informed decisions when it comes to making important operational choices. A more resilient business is a steadier business.

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