Why business interruption is a critical challenge for universities
- In the higher education sector, the business interruption (BI) element of a large property loss can often exceed the material damage portion
- Many universities rely on research funding for an increasing proportion of their income, making BI a critical risk to manage
- We examine how universities can better manage their BI exposures
In recent years, a number of factors have combined to make business interruption (BI) a major challenge for universities to negotiate.
The most significant of these is the value of research now being undertaken at institutions across the country, which according to Universities UK, accounted for more than £6.2bn in funding in 2017-18.
Not only are universities bringing in more money than ever through research funding, the quality of this research is often crucial in attracting students, researchers and academic staff. As a result, any significant property loss is likely to have implications far beyond just material damage.
Any interruption to research could lead to serious financial, academic and reputational implications. However, it is not always easy to identify, quantify, and mitigate exposures.
Gavin Chalmers, Workforce Strategies Team Leader at Zurich, explains: “In the case of a building fire, it is fairly straightforward to calculate how much it would cost to rebuild. What you don’t necessarily have an understanding of is the research income tied to a particular building, and to what extent the research can continue if a building, and specialist equipment within it, is lost.”
Rupert Riall, Risk Consultant at Zurich, adds that labs can pose particular challenges. “It may take years to develop a lab to a specific condition, with funding possibly awarded on the basis of highly-tuned equipment or unique research samples,” he says.
“If the building containing such assets are lost, replicating the required conditions at a temporary site may not be possible, and it may take years to get back to the pre-loss position.
“This research hiatus could result in a project being compromised and the university losing researchers and academics, which may in turn affect future funding. At the same time, the reputational damage may even affect the attractiveness of the institution to future students.”
While catastrophic fires – such as those suffered by St Andrews University and the University of Manchester – obviously have the potential to cause significant disruption, research can also be affected by comparatively minor incidents.
For example, if a power loss knocked out freezers containing high value research material, an entire project could be compromised. In addition, with the equipment used in research labs typically getting smaller, more complex, and more challenging to replace, accidental damage could impact multiple research contracts.
Teaching space is at a premium
Another factor to consider when putting together a continuity plan is teaching space. Space is at a premium for many city universities – in London in particular – and it can be difficult to find alternative accommodation in the event of a major loss.
Potential options could include re-timetabling to accommodate teaching or research space in other university buildings, or increasing the length of students’ days to squeeze more teaching time out of large lecture theatres for example. But, there will be times when neither option is practical as there may be limited options within the university’s own assets.
One university that Zurich works with has arranged use of a local cinema as a lecture space as part of its continuity plans, and thinking outside the box like this may be necessary to identify solutions.
Understand the risks and develop business continuity planning
Continuity and recovery planning is essential to minimise the impact of any business interruption. To do this effectively, universities need to build a clear picture of where their funding is coming from, and what buildings and equipment that research income is linked to (see boxout).
Ensuring those responsible for managing risk have a breakdown of the research income by department and building is a good way to start, but it is also important to think about the type of research being conducted, and whether it could be easily replicated in a different building.
While this will not be an exact science, conducting this kind of analysis will enable universities to develop more effective continuity and recovery planning, identify the areas of most significant revenue dependence, and allocate resources accordingly.
Identify key threats
Identifying and managing the key threats to critical activities, such as the risk of escape of water, power outages or fire is one of the most important elements of business continuity planning. Having an understanding of what steps to take should they occur is key.
Gavin explains: “It is important that universities, and individual schools or departments, ensure that they don’t have all their eggs in one basket. This could mean splitting research activity, equipment or samples across a number of sites so that work can continue if one building is lost.”
If a key piece of research equipment or an entire facility is lost, it is not only important to consider what steps would be taken to protect the research income, but also to have a formalised agreement in place which can be relied upon.
Gavin adds: “In the academic world there is a culture of collaborative working that extends across and between institutions. Partly because of this, we see a lot of informal agreements for sharing equipment and facilities as part of business continuity planning.
“While this may work in some cases, institutions need to ask themselves whether they can really rely on these informal agreements if a significant interruption happens.”
Build resilience through risk mitigation
Alongside business continuity planning, universities should think carefully about their physical protection and risk mitigation strategies. As Rupert explains: “Institutions should not just be thinking about what to do in the aftermath of a major incident – it is just as important to think about developing resilience before something happens.”
This includes physical protections such as sprinklers and fire doors, and making sure that documentation is kept up-to-date and building surveys are undertaken regularly.
Zurich can work with universities to build a picture of their exposures and to help them develop business continuity and resilience planning. Gavin concludes: “The more information universities share with us, the easier it is for all parties to understand where the exposures are and to respond appropriately.”