While insisting a ‘no deal’ scenario remains unlikely, the UK government has now published guidance on how to prepare for a no-deal Brexit, reflecting a serious and realistic prospect and one to which firms large and small must respond.
Undertaking an impact assessment is a practical and proportionate first step, and to start firms must identify the sources of uncertainty. Sources of uncertainty arises where there is variability, or ambiguity or a lack of information. Below are some common sources and the Brexit uncertainty factors associated with each:
- Staff numbers: Businesses need to assess both the number of EU staff members seeking resettlement and the number leaving, plus the costs associated with providing legal support, increased recruitment / on-boarding times, and reflect potential changes in future demand or supply.
- Project Days: Brexit will require changes to be made to processes and systems to facilitate new custom procedures, HS codes, tariffs. As well as having plans and schedules that reflect realistic timeframes, leaders need to explore the range of potential costs based on rates that reflect the potential for shortages in key areas e.g. software development, international trade knowledge, customs expertise.
- Costs: In a no-deal scenario there will be administrative and compliance costs in customs declarations, implementing Rules of Origin changes, administering VAT, hedging against currency movements, and regulatory changes. Tariffs may need to be factored into the cost base. The risk of contractual issues needs to be assessed, along with the risk of failing to secure IP rights.
- Revenues: Business needs to assess the revenue impact of losing existing EU trade agreements and preferential duty rates. Tariffs and Rules of Origin could have an impact on sales as well as costs. Cross-border contract provisions such as territorial scope, agent/principal arrangements, regulatory regime oversight, could all have consequences for sales.
- Supply chain days lost: Business need to estimate the impact of potential border delays across the range of possible frequencies and duration. Consider too the impact of supply chain delays on Service Level Agreements, commitments, and obligations.
- Working Capital: Business will need to assess the impact on working capital of holding additional inventory, EU VAT demands, and additional tariffs. Business will need to find ways to optimise working capital and improve cash flows despite the uncertainty.
It is crucial business focus on the sources of uncertainty when quantifying the impact. Unlike qualitative assessment statements such as ‘High, Medium, Low’ , quantifying across a range of possible outcomes provides a robust evaluation, enabling the best decisions possible given the available information.
At Risk Insights we have developed the only risk tool specifically designed for the first-pass estimation and evaluation of uncertainty, and today we launch our Brexit Impact Assessment model specifically for conducting Brexit impact assessments. Our unique approach delivers a quantified Brexit impact assessment tailored to your business.
While the government’s guidance on a no-deal is welcome, business leaders must take ownership and act now to assess the impact of Brexit on their organisation.
To learn how Risk Insights Explorer can help, contact us today.