A single point of failure, SPoF, in your business can literally devastate your business overnight yet many business leaders spend little or no time at all protecting their business against these risks!
In 1995, a rogue trader brought down Barings Bank through fraudulent, unauthorized, speculative trading. The bank, which had been established in 1762, had a single point of failure and did not have controls in place to protect itself. It’s SPoF destroyed it!
Similarly, uncontrolled trading of oil futures has crippled more than one oil company in recent years. Other businesses have been bankrupted due to manufacturing shutdowns caused by natural disasters, social uprisings, political unrest, wars, etc.
Any business that is even loosely dependent on the oil and gas industry is currently experiencing excruciating pain. Many businesses that depended entirely on oil and gas for their livelihood (e.g., their SPoF) are no longer in business today!
So, what exactly are single points of failure and what can a business do to protect against them?
What is a Single Point of Failure?
A single point of failure in your business is essentially any event or business component outage that has the potential to shut down the revenue generating part of your business.
Here are 10 examples of SPoFs in a business:
- Machinery – the business relies on a single piece of machinery or software to produce its products or services.
- Internet – the business relies on the internet to generate revenue. If everyone is working from the same location and the internet goes down, so does your revenue!
- Power – the business relies on power to its building to generate revenue. Consequently, if everyone is working from the same location and the power goes out, your revenue disappears!
- Building – the business needs a physical structure to generate revenue. Therefore, if everyone is working from the same building and the building becomes inaccessible, your revenue disappears!
- A person – there is a person in your business that is responsible for generating or enabling the majority of your revenue
- A patent – the business relies on a single patent or a small number of patents to generate revenue. What happens to your revenue when the patent expires? What happens if there is a patent dispute and someone files an injunction that restricts you from using that patent?
- Software (accounting, point of sale, engineering, database, website) – many organizations today rely heavily on software to keep their business operating (e.g., airlines). What happens when the software crashes? What happens in the event of maliciously hacking?
- An industry – the business depends on a single industry to provide it business
- Government regulation – governments are notorious for changing regulations without understanding the impact to business. Some businesses depend on one or more regulations to keep them viable.
- Supply chain – supply chain interruptions for a product manufacturing company can be devastating
What You Must Do with Single Points of Failure
Identify and relentlessly eliminate SPOFs from your business. This is not a one-time event. Single Points of Failure can and will change as the marketplace changes. Therefore, business leaders must recognize the impact that marketplace changes can have on their business and they must identify SPoFs early and eliminate or mitigate them.
How to Eliminate or Mitigate SPoF
There are many ways to deal with Single Points of Failure. For example, if your SPoF is a piece of machinery, you can mitigate this by:
- Buying a back up piece of machinery
- Having spare parts on hand to rebuild the machinery (along with the expertise to rebuild it)
- Establish a 24 hour replacement contract with the manufacturer of the critical machinery
- Create an emergency lease agreement with the manufacturer for a temporary replacement while your machinery is being repaired
- Form an emergency use agreement with another owner of the same type of machinery where your business is able to use their machine during their off hours
Do not over complicate this process. Simply identify the risk and build a plan to eliminate or mitigate the risk.
The plan may involve spending money to purchase equipment, establishing relationships with alternative suppliers, or to running redundant power and internet feeds to your building. You may decide that the probability of the risk materializing is so low that you just need a simple procedure to deal with the situation should it occur.
The bottom line is that you need to understand the SPoF(s) and have a plan to deal with them. Without a proper plan in place for Single Points of Failure, your business can fail as fast as Barings Bank!
Take some time this week and identify any Single Points of Failure in your business and develop a solid plan to eliminate or mitigate these threats.
“Success is nothing more than a few simple disciplines, practiced every day; while failure is simply a few errors in judgment, repeated every day. It is the accumulative weight of our disciplines and our judgments that leads us to either fortune or failure.” Jim Rohn
What experience do you have with Single Points of Failure that may provide value to other readers? Leave your comments below!
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