Following recent events in the infrastructure sector which have captured the public's attention, the UK government has focussed attention on resilience. It has previously set out proposals in a Resilience Statement to “improve how organisations identify, manage and report on their resilience risks that are most material to their business” [1].
The UK Government’s Resilience Statement went through many revisions following industry consultations, the most recent being a withdrawal of the draft secondary legislation on the 16th of Oct 2023. That said, the pressure for reform remains, and infrastructure organisations are not immune to the threats and impacts that was being addressed by the Resilience Statement, especially given the role infrastructure plays in our lives. Whilst the legislation has been withdrawn, resilience remains a government agenda.
With the rise of resilience as an agenda, we will consider three implications of resilience on infrastructure organisations.
Cost and Supply Chain disruption
Whilst UK inflation rates have reduced, there has been increasing uncertainty due to price and inflationary pressures, and the severity of supply chain disruptions on infrastructure, leading to a negative effect on customer perceptions and the value of assets.
Implication #1
Infrastructure organisations and their supply chain need to develop an improved level of risk transparency to ensure they have a much better visibility and understanding of costs and risks, and the methodology to appropriately review and mitigate these. To deliver this transparency, businesses need to develop an improved understanding of their corporate risks and the effectiveness of the associated controls down through to their supply chain. This will enable accurate reporting on dependencies and potential implications to Execs and Boards and, more importantly, it will provide the trigger for businesses to act.
Digital adoption
The infrastructure sector lags behind others on digital adoption and therefore misses out on the opportunities it presents due to a reliance on old ways of working, tacit knowledge and the challenge to embed new work management tools. Nevertheless, challenges exist with finding the right incentives to encourage its uptake throughout the supply chain, and ensuring they have the right skills and experience to translate their digital capabilities into actual insight and value creation.
Implication #2
As infrastructure asset continue to age, infrastructure professionals need digital capability support to better assess risks, cost, and performance impact. To ensure any materially significant risks and financial liabilities are understood, bottom-up assessments must be part of normal business. This will also support companies to carry out their Reverse test – a key requirement in the original Resilience Statement. For more on the key requirements, see our short blog here.
Climate proof Net-Zero transition
Our infrastructure sector is ubiquitous, supporting our way of life and economic advancement. As we transition into a net-zero world, we need to ensure that we do not transition into a less resilient net-zero world. We need to do this by ensuring resilience and net-zero investments go hand in hand to reduce the risks of being less resilient in the drive towards net-zero. This starts with the decisions made by infrastructure operators, investors, and regulators.
Implication #3
There is a growing need to move away from static resilience risk assessments to more dynamic resilience assessments. These dynamic risk assessments will need to be embedded within asset investment decision making so that operators and investors can, in a timely fashion, understand any risk exposure that may lead to (for example) stranded assets due to changing flood risk, or the inherent risks of a net-zero investment plan that is not aligned to the present and future realities of climate adaptation.
In summary, resilience remains a government agenda and there are significant opportunities for infrastructure organisations to improve value and performance, by:
- Gaining a deeper understanding of the impact of their supply chain on their corporate risks and the effectiveness of the controls.
- Improving digital capability to ensure bottom-up risks are understood and to carry out Reverse tests, deeper scenario analysis and make better decisions in material risks that would not be identified in a top-down exercise.
- Moving towards a more dynamic resilience risk assessment approach to ensure that they don’t end up with stranded assets.
