James E. Blair, President
December 2024

Dear Colleague:    
People Disruption Risk! 

Last quarter this advisory focused on the Pillars of People Risk!  We highlighted the positives that flow from effective management and performance of people, and the risk impact to the business when people don’t live up to expectations.  This fall 2024 we got serious lessons about the frailties of people and the negative impacts delivered when people failures occur.  

The American public got a tough lesson about the negative impacts of questionable human behavior through this election season.  National elections have always been tough, but this round’s political behavior was amplified by social media that served as a tool for both positive and negative.  With instantaneous messaging by opposing sides that was shared widely and with little accuracy, the public was immersed in a pool of angry and often mis-leading information.  You may have seen unexpected emotions within your workplace and communities which often resulted in diminished productivity; a RISK? YES!  The time has come to move on with determination and collaboration to produce the best outcomes in the new year.       
 
Shocking was the cold-blooded murder of Brian Thompson, CEO of UnitedHealthCare on December 4.  In whose imagination could this be possible in our society?  Who in the company would ask this question?  The fallout has been extraordinary, including the stock price dropping by 8%, employee shock and dismay, a social media frenzy, and industry confusion about the leadership of the company.  Imagine being in the industry and be suddenly exposed to the negative public opinion that the incident unleashed.  Every Integrated Risk Management Solutions, LLC client has been coached about the sustainability of the corporate leadership with strong advice to anticipate the protection of those leaders, plan for response and succession, and “Keyperson” Insurance coverage.  Comprehensive Risk Management asks tough questions, and this incident, while unfortunate in every way, highlights the imperative about planning for the day key people don’t show up.    
 
Climate, Hurricanes and Cyclones

$500 billion in economic losses have fallen upon the global economies so far in 2024.  Hurricanes Helene, Milton, Beryl, and Debby produced damage and death beyond 200 lives.  Hurricane Helene delivered 42 trillion gallons of rainfall, equivalent to the 2-year flow of Niagara Falls.  Portions of the east coast will not recover for years.  Insurance will cover about 40% of the costs, and the balance falls on businesses and communities.  The long-term costs of business loss, recovery from injuries, lost wages, crop losses, infrastructure damage, evacuation and relocation costs, lost tourism, supply chain disruptions, travel delays, and emergency management expenses are “long tail” unanticipated impacts.  Any business impacted by these storms will only survive with immense effort and dedication.  As of November, we had incurred 24 confirmed weather-related events with economic losses exceeding $1 billion in the U.S.  The stakes are high and deserve the best management of risk and preparedness possible.  

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Cyber Threats Continue

Ransomware and cyber-theft have become an increasing threat to all organizations.  Hackers lean into the actual destruction of their targets by damaging operations, customer service, relationships with suppliers, and company reputation.  The hacker operations look to disrupt the business and all parts of its constellation.  Stolen data is “exfiltrated” and sold on the open market; different from the original concept of encrypting data until ransom demands were met.  Hacker groups operate like “real” corporations with organizational expertise, outsourced functions, interorganizational sharing of best practices, global reach, and increasing leadership sophistication.

The World Economic Forum estimates that the global economic threat in 2025 will be $10.5 trillion (yes, with a “t”).  Statista estimates the average cost of a cyber hack in America at $9.36 MM per incident.  The costs increase between 15-25% per year and include everything from discovery of the incident, repair, data recovery, regulatory reporting, consumer impact notification, business interruption, revenue loss, reputation damage, and supply chain impacts.  Today’s hacks are sophisticated to the point of crawling throughout a network to spread the depth of the hack or theft into the operations of suppliers, service providers and customers.  The stakes are increasingly high!  

Please remember that the most common entry points for hackers are employees and trusted third party providers, including customers.  Sixty-two (62) percent of Small Businesses have been hacked this year.  Over 145,000 Industrial Control Systems across 175 countries are exposed to the internet, enabling compromise of utilities, manufacturing lines, food processing, financial systems, law firms, educational institutions, and health systems.  CISOs lose sleep over these facts, and yet, the C-Suite is still not aligned with the need to 1) train employees on how to recognize and avoid phishing messages, 2) require workers to use strong passwords, 3) require multifactor authentication, and 4) update business software to the latest versions.  Combined with inadequate governance that engages every component of business being committed to cyber-security, the hacking industry flourishes with little end in sight.  

And businesses are paying!  Courts are awarding “nuclear” verdicts exceeding $10MM and “thermonuclear” verdicts exceeding $100MM.  Business Interruption, Climate Change, and Cyber Incidents are the top three risks this year and likely into next.  

These are part of the Risk Management principles foundational to the work of Integrated Risk Management Solutions, LLC.  We help you prepare and deliver trusted and responsive products/services, and people.  I look forward to your thoughts and questions – please contact us. 

Manage Your Risks Well,
 
Attachment	
Risk Management is Every Team Member’s Business

Managing Risk = Cash Flow
Typical returns are 4:1 ROI and significant cash flow improvement!

Risk is anything that impacts cash flow!  Successful companies manage risk more effectively than competitors.  By practicing a “Risk Awareness” culture that engages every level of the business in prevention-centric behavior, cash flow is improved.
Key Risk Management Facts:
•	Companies spend between 7 - 10% of revenue on risk-related costs, including:
   - Safety 		- Security			- Information Security      - Health & Wellness
   - Absence*	- Theft			- Fraud Prevention	 		- Revenue Inefficiency 
   - Audit 		- Compliance 	- Investigations 	    	 		- Settlements 
   - Claims 		- Insurance 		- Crisis Management 	 	- Emergency Response
       * Incidental absence can increase the costs of employee health and wellness programs by 2X.

•	Risk costs are in multiple silos hiding the “Total Cost of Risk” and measurable ROI.
•	80% of company information system risks come from employees and trusted vendors.  
•	FM Global, a world-wide property insurance and engineering firm, estimates that company earnings volatility can be reduced by 50% through effective Risk Management prevention and preparedness programs.  
•	Companies that manage risks effectively will receive the best insurance prices and maximize the option to self-insure.  
•	Enterprise-wide Risk Management is a complete vision of company risk.  A strong Risk Management culture helps a company respond more nimbly to unforeseeable events. 
•	Documented and tested Business Interruption/Scenario Plans sustain key operations during an emergency and improve company survival by 70%.
•	Uncertainty and financial pressure renew the need to manage risk.  These pressures have always been present, but the magnitude and visibility are at an all-time high.    
•	Third party vendor transactions often result in 10% or greater errors and inaccurate billing.
•	Sarbanes-Oxley, Dodd-Frank and compliance audits only test transactional controls – operational controls are “the source” of risk – Operations Assurance is the key!  
•	Regular Operations Assurance reviews can improve revenue efficiency by up to 20%.
•	Synergy from a holistic focus on risk, cost/revenue efficiency, loss reduction, underperforming vendors and fraud produces impactful cash flow improvement.

2024 Global Risks Defined by:

World Economic Forum 
•	Misinformation & Disinformation 
•	Extreme weather events
•	Societal Polarization 
•	Cyber Insecurity
•	Interstate armed conflict
•	Lack of economic opportunity
•	Inflation  
•	Involuntary migration
•	Economic downturn
•	Pollution

      
 The Conference Board
•	Economic downturn/recession
•	Inflation  
•	Global political instability
•	Higher borrowing costs
•	Labor shortages
•	Rapidly advancing AI technology
•	Higher labor costs 
•	ESG backlash 
•	National debt
•	AI Risk Governance 

Manage Your Risks Well!
January 2024