Study's author demonstrates how lack of pandemic preparation will affect
TORONTO, June 17 /CNW/ - The Schulich School of Business today released a
new research study - the first of its kind in Canada - that assesses the
micro-economic impact of an influenza pandemic on individual companies.
Presented today at the World Conference on Disaster Management, the study -
Making a case for investing in pandemic preparedness - focuses on how standard
business performance metrics can justify investment in pandemic planning for
According to world health experts, it's not a matter of "if", but "when"
the next influenza pandemic will strike.(1)(2)(3) The cumulative probability
of a pandemic over time is expected to be in the range of three to 10 per cent
for 2008, 14 to 41 per cent by 2012 and 26 to 65 per cent by 2017.(4)
"The probability that an influenza pandemic can adversely affect a
company's employees is greater than the probability that a fire could
adversely affect a company's property," says Dr. Amin Mawani, the study's
author and Associate Professor in the Health Industry Management Program at
the Schulich School of Business at York University in Toronto. "Firms don't
hesitate to buy fire insurance, yet seem reluctant to invest in protecting
themselves against an influenza pandemic. The study presents a compelling
business case for investing in pandemic preparedness."
Given our inter-connected world with global supply chains, an influenza
pandemic could result in corporations experiencing severe absenteeism of 30 to
40 per cent among its employees.(5) Since employees are a company's revenue
drivers, prolonged absenteeism would have a significant adverse impact on a
corporation's revenues and profits. Previous studies have shown that supply
chain disruptions can be extremely costly to a firm, including those caused by
disruptions in the supply of labour. Given the probability of a pandemic
occurring and the potential adverse impact, the Schulich report demonstrates
that corporate pandemic preparedness, which includes preventative measures
such as stockpiles of antiviral (anti-influenza) medicine to protect
employees, makes financial sense when looking at common business metrics such
as net present value (NPV), internal rate of return (IRR) and payback.
"The study also suggests that companies cannot afford to miss being
prepared for an influenza pandemic, especially when their competitors are
getting prepared," adds Mawani. "Competitors who have prepared themselves for
a pandemic can have a unique window to steal market share during a pandemic,
as well as to make strategic moves that may be harder to reverse later."
Pandemic-prepared suppliers can enjoy a comparative advantage even if a
pandemic never occurs, since customers will feel more secure about the
reliability of their supplies.
Macro versus micro economic impact
Most of the available research done on the economic impact of an
influenza pandemic has focused on macro-economic measures. For example, BMO
Nesbitt Burns estimates a two percentage point decline (or $20 billion drop)
in GDP growth in the Canadian economy in the event of a mild pandemic, and a
six percentage point decline (or $60 billion drop) in the event of a severe
pandemic.(6) This Schulich study is the first one to analyze the financial
impact of a potential influenza pandemic at a firm level.
According to Mawani, "companies must do their own financial analysis to
asses the impact an influenza pandemic could have on foregone sales and
For example, a Harvard Business School conference on the topic of
pandemic preparedness cites a mid-size life insurance company whose market
capitalization dropped by almost 15 per cent - a $208 million loss for a
$1.4 billion company.(7) The Schulich study also cites a published study on
Y2K-preparedness which showed that the market rewarded firms that were better
prepared for Y2K with higher stock prices.
The global outbreak of SARS (Severe Acute Respiratory Syndrome) in
2002-03 (which was not widespread enough to qualify as a pandemic)
demonstrated just how quickly a new respiratory virus could spread - from a
single case in rural China to a disease which sickened thousands and killed
774 people worldwide. But it was absenteeism among employees, customers and
suppliers that led to SARS having a massive adverse economic impact of
$2 billion in Canada (or 3 percentage points of gross domestic product (GDP)
that quarter) - even though the health effect in Canada was limited to 44
"The economic impact of employee absenteeism on a small undiversified
business can be far worse than the impact on the macro-economy," says Mawani.
"What may be a tolerable adverse impact to a large diversified region could be
a catastrophic loss for a single organization."
The Schulich study examines the potential costs of mitigating the
employee absenteeism effects of an influenza pandemic and compares it to
potential benefits in the form of revenues and incomes potentially preserved.
For this study, the cost-benefit analysis was done for a Canadian public
corporation that disclosed some of the effects that SARS had on its business
in its Management Discussion & Analysis (MDA) reports. The selected company
requires a majority of its employees to have direct interface with the public,
thereby putting them at risk of infection - which means the ability of the
corporation to function and generate revenue and profits can be jeopardized.
Using the drop in financial reported income during SARS as the conservative
benchmark, the Schulich study demonstrates that all corporate capital
budgeting metrics such as net present value, internal rate of return, and
payback, justify investment in pandemic preparedness. Such an investment would
include expenditures on antiviral stockpiles, personal protective equipment
"Commonly used corporate capital-budget metrics indicate that investments
in pandemic preparedness can be economically and financially viable," says
Mawani. "Such investment can likely contribute favourably to the corporation's
bottom-line, shareholder value and competitive positioning."
How a business can plan for a pandemic
Stockpiling protective equipment and antivirals is a good place to start.
The influenza virus is infectious from the day before a person develops
symptoms up to seven days afterwards, implying a rapid spread among the
population, especially in crowded circumstances. While masks, gowns and other
preventative measures play a role, stockpiling antiviral drugs to prevent
infection among employees must be part of the bigger preparedness plan.
World health experts believe antiviral drugs will be key in controlling
an influenza pandemic since scientists cannot begin working on a vaccine to
protect people against a new influenza strain until the disease emerges. The
hope is that antiviral drugs would serve as a stop-gap, allowing scientists to
develop the new targeted vaccine.(9) Antivirals work by attacking the
influenza virus and prevent it from spreading inside the body.
The World Health Organization has encouraged the stockpiling of antiviral
drugs, and the Canadian government has stockpiles designed to treat 17 per
cent of the population should they become infected. This coverage for only
17 per cent of the population ranks Canada second to last for antiviral
coverage among the G7 countries and it is the only G7 country whose stockpile
is for treatment of the sick only. Canada has not officially adopted a policy
about the use of antivirals as a preventative measure against the spread of an
Just this month, U.S. draft pandemic guidelines issued by the Health and
Human Services (HHS) Department suggested employers play a key role in
protecting employees' health and safety, thereby limiting pandemic impacts on
health, the economy, and society. HHS states that private stockpiles, in
coordination with public health stockpiles, would extend protection more
broadly than could be achieved through the public sector alone. In
combination, these private and public stockpiles would improve the ability to
achieve the national pandemic response goals of mitigating disease, suffering,
and death, and minimizing impacts on the economy and functioning of
"Canadian companies cannot rely on the government to protect its workers,
or their profit margins, against an influenza pandemic," says Mawani. "With so
many other pressing issues, preparing for a pandemic may not currently be high
on the list of priorities for businesses. However, not doing so could result
in devastating consequences for their operations and supply-chains."
About the Schulich study
Making a case for investing in pandemic preparedness was funded through a
research grant by Roche Canada. A copy of the full Schulich School of Business
study is available at http://www.schulich.yorku.ca/pandemic
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About The Schulich School of Business
Known as Canada's Global Business School(TM), the Schulich School of
Business is ranked among the world's leading business schools with programs
year-round on two campuses in Toronto, Canada and in satellite centres in
Beijing and Shanghai, China; Mumbai India; Seoul Korea; and Moscow, Russia.
Schulich offers undergraduate, graduate and postgraduate business degrees and
has over 20,000 alumni working in more than 80 countries. Schulich pioneered
Canada's first International MBA and International BBA degrees, as well as
North America's first-ever cross-border executive MBA degree with the Kellogg
School of Management in Chicago, Illinois. Schulich's Executive Education
Centre provides executive development programs annually to 16,000 executives
in Canada and abroad.---------------------------------
(1) Jong-wook, L, Opening Remarks - Meeting on Avian Influenza and
Pandemic Human Influenza, Geneva, Switzerland, November 2005.
(2) The World Health Report 2007 - A safer future: global public
health security in the 21st century, (The World Health
Organization, Geneva, Switzerland, August 2007), 50.
(3) The Blue Ribbon Commission on Mega-Catastrophes - A Call to
Action, (The Financial Services Roundtable, Washington, D.C.,
(4) Alison McGeer, 2008, slide presentation made at a conference on
pandemic planning in Toronto on April 23.
(5) Cooper, Sherry, 2006, The Avian Flu Crisis: An Economic Update,
BMO Nesbitt Burns, March 13.
(7) Harvard Business School, 2007, Business Preparedness for Pandemic:
Executive briefing for corporate and government decision-makers,
(8) Health Canada (2003) "Canadian SARS numbers" online at www.phac-
(9) http://www.World Health
ORGANIZATION_ CDS_ CSR_ GIP_05_8-EN.pdf.
For further information: Rachel Manna or Teresa Pagnutti, Environics
Communications Inc., (416) 969-2654 or (416) 969-2721,