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An avian flu pandemic is potentially the greatest single threat to business globally. No one can predict when or if a pandemic will happen, nor how lethal the outbreak might be. But if it is as deadly as has been predicted, business leaders are by many accounts severely under prepared.

Evidence of the paucity of preparation comes from the UK industry watchdog, the Financial Services Authority (FSA), which recently published the results of the world’s largest pandemic simulation.

More than 70 organisations and 3,500 people took part in the effort to model what may happen in the event of a pandemic. During the six-week exercise run during autumn 2006, participating companies were presented with absenteeism rates rising from 15% up to 49%; there were even clusters where the levels briefly touched 60%.

The simulation was always intended to be a learning exercise, but as the FSA’s preliminary report highlights, there is plenty of learning to be done – especially on the IT side. The harshest lesson for many will be that the assumption that the impact of absenteeism can be alleviated through the widespread adoption of IT-enabled home working is grossly naive.

The FSA reports that compliance and control mechanisms were severely tested by widespread home working; IT security issues arose; so too did IT support ones. Most significantly, “the exercise also raised the question of whether the telecoms infrastructure would be able to support large-scale home working for a prolonged period when staff shortages in the telecom sector progressively eroded maintenance capability.”

While the exercise focused on financial services companies, the lessons are applicable across the board, says Chris Keeling, a partner at business continuity consultancy, Acuity Risk Management: “Everyone will be affected.”

The impact of an avian flu outbreak is difficult to predict, but authorities are preparing for the worse. As of early January 2007, the World Health Organisation (WHO) has recorded 263 cases of the H5N1 strain of avian flu infecting people. Of those, 157 have proved fatal. The WHO recognises the potential for this virus to mutate into a strain easily contractible by humans; that could easily result in a pandemic.

Many businesses have made home working a central part of continuity plans. Indeed, a year ago, banking giant HSBC admitted it was making contingency plans for half of its 250,000 workforce to be absent, and scaling up its home working capabilities accordingly.

Home working may be entirely suitable for some types of activities, says Keeling. Others will be tricky: tasks that depend on powerful mainframe applications and extremely low levels of application latency are likely to be problematic from a home base. And even in industries where home working should be possible, there are potential risks.

“There are concerns that the broadband infrastructure – which can be flaky even now – will not hold up. Increase [current] demand by 25% and there could be some real problems,” he says.

But the recognition of those issues is proof that the exercise was a success, says Keeling. It is still too early to predict when, or even if, a pandemic will occur. In the meantime, business leaders now have a better understanding of some of the potential issues.

And the financial services industry may provide the best early warning of any forthcoming pandemic. In November 2006, Thomson Financial, an information provider for the securities sector, announced that it was developing a risk indicator that will allow financial services companies to predict the impact of bird flu on their markets.

This sort of ‘predictive market’ uses the same powerful trading technology employed by other market traders to aggregate all relevant information. Such data-intense approaches have frequently been more accurate in predicting future events than any expert charged with watching the subject.