MBB - Climate Change Operations - Part 2

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Ideally, the candidate will have a structured answer in key themes.  The main options at our disposal are:

1. Flood protection: This can involve building physical structures, such as seawalls or levees, to protect the factory from incoming water. Other flood protection measures might include raising the elevation of the factory or installing pumps or drainage systems to remove water from the site.  The company can also consider modifying the design of the factory to make it more resistant to flooding. This could include using flood-resistant materials, such as concrete or steel, in the construction of the building and installing systems to mitigate water damage, such as watertight doors and elevated electrical systems. The company can implement internal adaptations measures to help it cope with the impacts of coastal flooding. This could include investing in backup systems and processes to ensure business continuity in the event of a flood, or taking steps to reduce the company's dependence on operations that are located in flood-prone areas.
2. Insurance: The company can also consider purchasing insurance to protect against the financial losses that might result from coastal flooding. This could include both property insurance to cover damage to the factory and business interruption insurance to cover lost revenue.
3. Relocation: If it is not feasible to protect the factory from flooding, and insurance will not be adequate the company might consider moving the factory to a safer location. This could involve identifying a new site that is better protected from coastal flooding, and relocating the entire factory, or just the critical operations and equipment, to the new site.

A strong candidate will recommend a cost-benefit analysis, contrasting the cost of implementing each option with the expected value of the risk mitigation. A cost, effectiveness, and feasibility framework is also a strong answer.

1. Cost: The cost of each option should be carefully evaluated to determine if it is financially feasible for the company. This might include not only the upfront costs, but also ongoing costs, such as the cost of maintenance and repair for flood protection structures, or the cost of relocating operations and equipment to a new site.
2. Effectiveness: The effectiveness of each option in mitigating the risks posed by coastal flooding should be evaluated. This might include considering the likelihood of the option to reduce the frequency and severity of flooding, as well as the level of protection provided by the option.
3. Feasibility: The feasibility of each option should be considered, taking into account any regulatory, policy, or technical constraints that may impact the ability of the company to implement the option. For example, some flood protection measures may not be possible in certain locations due to zoning restrictions or the presence of other infrastructure.

The candidate should identify Modifying as the best option for Factory E and Insuring is the best option for Factory G. These actions across Factory E and G will save the company $20M in today’s dollars.

The candidate should note that there is no good option for Factory A, H, and Factory E (all options across these factories lose money). 

Recommendation:

After conducting an assessment of the company's operations and the potential impacts of climate change, we recommend that we invest in climate change proofing modification for Factory E. We recommend that we purchase a coastal insurance plan for Factory G. These actions across Factory E and G will save the company $20M in today’s dollars.

In addition, we need to sell factories A, H, and E to the highest bidder.

Risks:

• One risk of investing in flood protection infrastructure is that it may not be sufficient to protect against the worst-case scenario. It will be important for the company to consider the likelihood and potential impact of extreme weather events, and ensure that its investments are commensurate with the level of risk.
• Another risk is that the company may face challenges in securing the necessary approvals or permits to build flood protection infrastructure, especially if it is located in a sensitive environmental area.
• Selling factories poses its own risks – we are not sure we will find a strong bidder, and we are giving up production capacity, market share, and profits.

Next Steps:

• Develop a detailed plan for implementing the recommendations, including timelines, budgets, and roles and responsibilities for each step.
• Consider seeking external expertise or support to help with the implementation of the recommendations, particularly if the company lacks in-house expertise in areas such as renewable energy or flood protection.
• Look at strong options for investing the capital we attain by selling factories A, H, and E – we want to make sure we put the capital to work to generate profits in other areas.