Thursday, March 10, 2011

ERM-BC-COOP: Domino effect


Unrest in Libya and elsewhere in the middle east.

Oil prices shoot up.

Gas prices hit new highs.

Saudia promises to make up oil deficit.

Oil prices dip - a bit.

Gas prices rise again.

What does it mean to my business?

Possibly a hit to the bottom line.

If my business manufactures something, my raw materials will cost more.

My vendor has to pay more to get raw materials for its operations.

The transportation that brings the raw materials to my shop costs more.

The fuel my company uses to create our product costs more.

My employees pay more to get to and from work.

It costs more to ship our product to our customers.

We raise our prices

  • to compensate our employees for their added expense (Priority One)

  • to pay the additional vendor-side expenses

  • to cover our shipping costs to our customers

The $64,000 Question is: Will out customers pay the new price?

Service industries are no better off.

Most have parts to sell/install, and therefore they, too, have increased "vendor-side" costs.

Many provide on-site support - plumbers, electricians, computer techs, ERM/BC/COOP practitioners. There is travel to, and from, the client site. Travel costs have to be recouped, either through a direct charge or by increasing the service charge.

Last month I could have flown to San Francisco for, say, $800. Today, March 10, 2011, a similar ticket on Delta Airlines will cost $1,504 (plus another $41.30 for taxes).

Will lodging costs go up? Probably; hotel and motel expenses are rising just like ours.

What about insurance coverage? Will that go up as well? Does insurance fall into the "service" category? 'Nuff said.

If an organization can move some or all of its operations out of a central facility to its employee's homes (virtual office), there may be some savings, but who will pay for the employee's Internet connectivity, especially if the employee doesn't otherwise have connectivity? Will it be subsidized if a faster-than-dial-up service is required?

Despite government promises since 1975 to encourage "going green," very little has been done to accomplish that goal. True, some things ARE more efficient, but Americans still are highly dependent on foreign oil; whether or not we have enough domestic oil and whether or not it is politically correct to drill for it is another issue. While that issue is very much a concern ERM/BC practitioners, it is NOT one for this blog - at least not now.

The problem we are facing today is nothing new and, in fact, it is so far not as bad as it was in 1975, but it has the potential to reach that level.

If you were around in '75, try to recall what happened to real estate prices. While I can't see the linkage between oil shortages and real estate prices, I know real estate prices soared about the same time.

Call it the ripple effect or the domino effect, the impact touches all of us, directly or indirectly. We need to consider this and other "unpredictable" events as we create ERM/BC plans and programs.

What excuse does anyone have for failing to include hits to the profit margin from any source? I can't think of any.

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