Disaster Recovery Plans: The Right Preparation Can Protect Assets and Profits
Abstract: Businesses face existential threats from disasters such as fires, hurricanes, tornadoes and floods. Prudent advance planning will help preserve assets, retain customers, and ensure the preservation of systems required to continue operations. Recovery routines must be supported by sufficient insurance to cover specific regional risks.
Fires in California. Tornadoes in Kansas. Hurricanes in Florida. Floods in North Carolina.
Natural disasters can strike anywhere, causing lost lives, destroyed homes, and damaged communities.
Businesses are not spared. Those left behind can find themselves repairing collapsed structures, replacing destroyed inventory and reworking disrupted supply lines. Little wonder one out of four businesses does not open again after a disaster, according to the Small Business Administration (SBA).
“Damage from disasters can be especially great for smaller operations with insufficient financial cushions,” said Erica Bornemann, Vice President of Planning and Risk Reduction at AC Disaster Consulting. “In the worst-case, a disaster can put a company out of business.”
Plan ahead
Given the stakes involved, adequate preparation is critical. “Every business needs to develop a comprehensive all-hazard emergency response plan,” said Bryan Davis, a consultant with Texas A&M University extension service. “The plan should cover communication protocols, evacuation routes, and procedures for protecting employees, customers, and assets.”
A well-designed plan will help a company not only preserve assets during a disaster but also return to commercial viability sooner. “Getting back into business quickly after an incident can translate into goodwill with customers,” said Justin Kates, an emergency management consultant.
Recovery procedures must be tailored for each operation. “It’s tempting to download a boilerplate plan from the Internet and call the job done,” said Kates. “But a general, all-purpose plan reflects neither the risks specific to an enterprise, nor the special mix of available resources.”
Conversely, a tailored plan will ensure that employees make the right moves when disaster strikes. That’s important, because the emotional impact of a serious event can make it hard to think clearly. “People often become paralyzed when disaster strikes,” said Rebecca Rice, an assistant professor of crisis communications at the University of Nevada. “Too often, they have no idea what to do.”
Assess risks
A successful recovery plan starts with a thorough risk assessment that identifies a company’s unique vulnerabilities. What hazards are most common in the area? Is the company facility located in a floodplain? Near a local highway where trucks with hazardous materials go by? In a fire-prone region?
Help with identifying local risks is available from the Federal Emergency Management Agency (FEMA). “A good, free and easy tool for doing a basic risk assessment for your location is FEMA’s National Risk Index,” said Kates. “You can search your address online and assess your area’s overall disaster risk level, as well as the most likely categories of events.” (An online search tool is at www.fema.gov. An interactive risk index map is available at https://hazards.fema.gov/nri/map ).
Businesses can also seek advice from their county or city offices of emergency management, which often post lists of a region’s salient threats. “Local agencies often have area-specific emergency management plans that highlight issues otherwise overlooked,” said Rice. “They can serve as useful starting points.”
When identifying common risks, it’s wise to look beyond the walls of the enterprise and consider how damage to suppliers can trickle down to local operations. “It’s important to consider how your business will be affected by transportation and supply chain interruptions,” said Bornemann.
Bonus tip: When identifying risks, keep in mind that even small-scale events can wreak havoc. “A burst water pipe can cause costly water damage,” said Bornemann. “A flu outbreak can affect every worker assigned to a facility.”
Get resources
Once the most likely disasters are identified, the business should create a plan for maintaining its most important business activities, from receiving and filling orders to collecting amounts due.
Once again, help is available from outside sources. “FEMA has established a website called Ready Business (ready.gov/business) with templates and tools that walk a business all the way from developing an emergency plan to preparing employees so they’re ready to get back to work after a crisis,” said Kates. The organization maintains a website, and has local emergency management offices that can be helpful.
The Small Business Administration (SBA) also has a web page dedicated to business continuity, (Go to sba.gov, then click on “Business Guide,” then “Manage Your Business” and “Prepare for Emergencies.”)
Yet another resource is the National Fire Protection Association (nfpa.org) which offers guidelines for fire safety and risk mitigation.
Related: Natural Disasters and Their Impacts on Resorts: Strategic and Accounting Considerations
“There are also benefits to joining the National Emergency Management Association (nemaweb.org) and participating in its private sector committee activities to learn about useful resources,” said Bailey Farrell, Senior Director, Project Management at AC Disaster Consulting.
Local organizations can also help. “Many city and state emergency management agencies, chambers of commerce, and small business development councils (SBDCs) have put together tools and templates, and even technical assistance, for different types of emergency plans and risk assessments,” said Kates. “They are attuned to the specific hazards common to a region.”
Finally, an organization’s insurer can provide useful information. “Companies should take advantage of an insurance company’s expertise based on its experience with other operations in the same region,” said Peterson.
Bonus tip: Involve your staff. “Too many businesses ignore input from their employees during emergency response planning,” said Davis. “Front line personnel can often suggest practical procedures that will mitigate harm from severe events.”
Involve employees
As the above comments suggest, the details of disaster recovery plans will vary to reflect local risk categories and resources. Most, however, will include basics such as the location of a temporary office relocation site, backups of business data, and redundancies for services such as data processing and power generation.
The prudent plan will also address the importance of preparing the staff to respond appropriately and quickly when a disaster strikes. “Everyone needs to understand what the plan is for different types of emergencies,” said Kates. One of the first steps is to communicate information about the event to employees, customers and suppliers.
Too often though, operational disarray keeps the word from getting out. “Businesses often discover they have not planned for efficient communications when disaster strikes,” said Davis. “Indeed, a breakdown in communication is the most common cause of business disruption.”
Again, advance planning comes to the rescue. Every company should maintain a comprehensive list of employees in a document called a “calling tree” that specifies who will contact whom when disaster strikes. A well-organized protocol will obviate redundancy and ensure everyone is informed. “You don’t want to end up with signals crossed when multiple people try to contact each other,” said Rice.
Internet disruption may obviate the use of email, so the calling tree should also contain phone numbers, physical addresses, and the names of each individual’s alternative contacts in the form of friends and family.
Finally, the calling tree should specify who will reach out to customers, suppliers, and service firms that can undertake repairs.
Having a plan is one thing. Ensuring everyone understands it is another. Regularly scheduled drills will help employees react automatically when an event occurs. “We recommend regular exercises during which team members talk through potential scenarios,” said Kates. “These rehearsals ensure the plan is realistic and will actually work during a crisis.”
Review insurance
You’ve got insurance that backs up your emergency response plan with financial assistance that will help maintain operations. But is your insurance the right kind?
“Insurance policies must cover the specific perils identified by a company’s risk assessment initiative,” said Kates. “Too often, businesses discover they don’t have the right coverage for the damages encountered.”
Coverage levels also need to be regularly updated. “The cost of building materials keeps going up,” said Rice. “Policies must be updated to ensure the company has sufficient funds for rebuilding.”
Related: Accounting for Disasters and Insurance Proceeds: Is Your resort Prepared?
Businesses should also consider taking out business interruption insurance to replace lost income; extra expense coverage for the higher moving costs and rents possible at a new location; and contingent business interruption insurance for lost income when a damaged supplier is unable to deliver.
Finally, there is the growing challenge of policy availability. Many insurers are exiting unprofitable markets, leaving businesses with limited choices.
“There’s a lot of concern today about what is going to happen regarding insurance policies in areas that are particularly disaster prone, such as Florida and California,” said Kates. The fires that recently ripped through portions of the latter state have resulted in insurance becoming extremely difficult to obtain.
Flood insurance can be a special problem anywhere. “The frequency and severity of extreme weather events have increased,” said John Peterson, Chief Growth Officer at World Insurance Associates, an insurance brokerage. “Consequently, flood insurance is becoming very difficult to obtain in certain geographies.”
Bonus tip: Flood insurance must cover not only damage from rainstorms and burgeoning streams, but also from blocked storm drains, broken water towers, and damaged pipes or boilers.
Take action
Getting the right recovery plan in place can seem like a daunting task. Little wonder the default position is procrastination. “Too often, a crisis propels the topic to the forefront,” said Kates. “Then a company scrambles to design a plan for whatever they have just been through.” Planning after the fact, of course, does little to protect the company’s assets.
The tendency to leave the topic on the back burner means it can be a struggle to get key leadership on board. Front office attitudes, through, are undergoing change. “We are seeing more disasters in the news, and that is creating more urgency around the whole topic of emergency planning,” said Kates. “Companies are starting to realize they need to put good plans in place and train their teams to handle these crises.”
The alternative is not acceptable. “The human cost of disasters, along with the levels of destruction, is increasing every year,” said Rice. “We might feel like a disaster will never happen to us, but the things we imagine will never happen seem to be happening more and more, and costing more time and money, than ever before. And that’s really the ultimate reason that businesses should have disaster plans.”
Phillip M. Perry is an award-winning business journalist based in New York City. He covers management, employment law, finance and marketing for scores of business magazines.
