Ready For The Worst:
Prior Planning Speeds Disaster Recovery
The floods and tornadoes that ravaged the Midwest recently remind us anew of the damage and often costly power of Mother Nature. What more appropriate time to consider the ability of your own enterprise to survive unexpected catastrophe? Fire, flood, wind storm, tornado or earthquake--any one such event can cripple your business by destroying buildings and critical records.
It’s vital to prepare for even smaller scale disasters that can cause financial and personal hardship. Consider the experience of Iowa Spring, Adel, Iowa, where a high ground location would seem to free the company from flood fears. Even so, one year heavy rains resulted in rising waters that cut off access to three of the four highways running into the town. “Right away we started wondering how our employees would get to work,” notes company president Tim Bianco. “It turned out that the flood added a longer commute of some 10 to 15 miles for
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| Total destruction... can spell the end of an enterprise. Given the time and labor involved in building a manufacturing company with unique machinery, the prospect of doing it over again from scratch can be overwhelming. |
our workers, for three or four days.”
Inconvenience, then, is one end of the disaster scale. Total destruction is the other, and in practical terms it can spell the end of an enterprise. Given the time and labor involved in building a manufacturing company with unique machinery, the prospect of doing it over again from scratch can be overwhelming. “When I think of rebuilding this whole company from nothing—Wow, that’s scary,” says Scott Rankin, president of Vulcan Spring & Mfg. Co. “I can see where a lot of companies say ‘okay that’s it’ when a disaster hits. They just close up.”
You can’t stop a storm from coming, but you can prepare contingency plans that lessen its impact. “Every business should prepare itself as best it can for disaster,” says Don Griffin, vice president of personal lines at the National Association of Independent Insurers (NAII), Des Plaines, Ill. “That means creating a recovery plan.”
Step 1: Assure Continuing Production
The most successful plans provide for some method of continuing production in the event of a crisis. Establishing remote facilities is one excellent technique. Vulcan Spring, for example, keeps two machines off site to use if disaster should strike the company’s main plant. “In the event something happens we can get those machines running in a couple of hours and start making springs right away,” explains Rankin. “They won’t replace 40 machines but they can keep things going until we get everything rolling again.”
Redundant generators can keep a plant operating when the power goes out. “If we run out of power we have access to two generators,” says Rankin. “A smaller one starts automatically for lighting and some small office machines. A bigger generator starts up if the power is off for an extended period.”
A similar approach is taken at Iowa Spring which maintains two facilities in Iowa and North Carolina. “The chances that both facilities would be damaged at the same time are practically nil,” says Bianco. “So in the event of a disaster we could shift people to the other location where we maintain production facilities.”
Iowa Spring has business interruption insurance sufficient to fund the transportation of employees across country. Springmakers need to work with insurance agents to assure complete coverage. “You can’t insure yourself for everything that can possibly happen,” says Griffin. “But you can look at the policy you have right now and get advice about improvements from an experienced professional.”
Make sure your policy covers both your building and inventoried goods. And be aware that property insurance policies do not compensate for flood damage. Such losses must be covered by insurance purchased from the National Flood Insurance Program (www.floodsmart.gov). Finally, consider the benefits of insurance that will maintain your liquidity when revenues screech to a halt.
Step 2: Secure Your Critical Information
When disaster strikes, it’s too late to think about gathering information from destroyed sources. Now is the time to create records of critical data and store them in locations remote from your business.
At Vulcan Spring, important computer data is copied to a box in a remote location. “If something should happen we can carry the box in, plug it in and have access to all our information,” says Rankin.
Once that’s done, put together a list of “emergency responders.” These are individuals you will need to call to get your show back on the road. Here are some examples:
• Attorneys, accountants and insurance
representatives.
• Service firms which can accomplish tasks such as removing water from the premises, cleaning, removing rubbish, painting, repairing electrical and plumbing systems, replacing locks, and repairing and installing data processing systems.
• Real estate agencies which may assist in establishing an alternative base of operations while restorations continue.
• Make copies of all of the above data and store them off-site in a bank safe deposit box or
your home.
Step 3: Assign Duties To Employees
Following a disaster, employees need to know whom to contact. “We have a call list with details on who is contacted first, second, third and so on,” says Bianco. “And we include the numbers for the governmental agencies that need to be contacted for various disasters, whether medical, wind or fire. Our management committee reviews this list once a year.”
You should outfit an office for temporary quarters while you conduct recovery operations. This may be located in your home or another secure place away from the main business. A copy of your emergency phone number list and your recovery plan should be kept at this location. Have a computer system in place into which the latest data can be installed. Under the best of conditions this computer would be updated regularly with business data.
Step 4: Maintain The Plan
Don’t just write the plan once and put it on the shelf. Iowa Spring does a continuing round of informal risk assessments every 18 to 24 months. Additionally, the company sits down with its risk carrier once a year for a formal review. “Our greatest risk is wind damage,” says Bianco. “When it comes to tornadoes everyone is at the whim of Mother Nature.”
While the above steps provide a rough blueprint for obviating the worst effects of disaster, recall that no business is an island. You need to anticipate the requirements of the government agencies that will secure your buildings in a disaster. You not only need to plan for yourself but also for coordinated action with local emergency responders. For example, if you have a fire at your building your local fire department will need to know what types of materials are stored there. The only way to get this done is to establish communications before unexpected events occur.
No matter how careful you plan, there will be some impact on your cash flow and profits in the event of a disaster. Draw up an estimate of how much you will lose in terms of productive days. Ask the following questions:
• What will be the impact on your cash flow?
• How will a disaster affect your ability to sell and deliver goods and services?
• How much will it cost to get your company back up and running?
• What inroads will be made by competitors who can pursue your current customers?
The answers to such questions can help you produce a recovery plan that lessens the damage when disaster strikes.
Phillip M. Perry is an award-winning journalist specializing in the fields of business management and law. Over the past 20 years, his byline has appeared more than 3,000 times in publications such as World Trade, Business, Corporate Risk Management, Human Resource Executive and The Legal Times of Washington. Readers may contact him by fax at (212) 226-5580 or e-mail phil@pmperry.com.
