The list of potential threats to businesses is extensive and varied depending on the industry, but the one risk all businesses face is the unpredictability of Mother Nature.
While natural disasters cannot be prevented and can strike with little to no warning, there are steps businesses can take to lessen their impact.
Businesses that have a disaster recovery plan, also referred to as a business continuity plan, will be protected and have the ability to get back up and running more quickly.
The Graham Co.’s “2015 Business Risk Survey,” a national survey of 300 senior business professionals, revealed that less than a quarter of businesses felt they were “very well prepared” to address challenges related to extreme weather or a natural disaster. Moreover, one third of respondents reported not having a formal disaster recovery plan in place.
Forming a disaster recovery team
The first step in creating a disaster recovery plan is to select a team that will be responsible for its creation and execution.
Key members will include a team leader and a staff of employees that specialize in information systems; operations; insurance; human resources; communications; and public relations.
Local emergency response personnel should also be brought in to understand your operation, as well as their role in the response to a disaster. Having people familiar with your facilities and all aspects of your operation will be crucial to protect your properties from further damage.
The team leader is a time-intensive role that requires a year-round commitment, not just during the aftermath of a disaster. It is necessary that the team leader have the time and flexibility throughout the year to review the disaster recovery plan. It should be clearly defined how the CEO or other executives will interact with the team leader because this can be a source of contention if not properly defined prior to a disaster. This cross-functional disaster recovery team should meet on site at least twice a year.
A disaster recovery team has specific responsibilities throughout the recovery process. During the initial stage, the team must work with the necessary emergency services groups to bring a catastrophic event under control. The team must also communicate the situation and how the company will handle the crisis to employees, as well as clients and other stakeholders.
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Your company's disaster recovery plan will need to be well-thought out and cover a variety of scenarios. (Photo: iStock)
Components of a disaster recovery plan
Once the disaster recovery team has been identified, the team should work together to develop a plan that will keep the business up and running and protect employees. However, plans can vary depending on what a company does.
For example, a technology-driven company would see information and systems as the top priority if a natural disaster, power outage or some other significant event occurred.
Maintaining a back-up facility away from the primary facility would be a critical part of that company’s disaster recovery plan in order to sustain business operations. While each individual business’s disaster recovery plan will vary, these are the key components:
- Understanding the likelihood and consequences of natural disasters. How would a prolonged power outage, one going on for more than a couple of days, affect your business operations? Where would employees work if significant flooding occurred? Knowing what could happen, depending on your geography and surrounding exposures, helps you plan for a variety of scenarios. Answering these questions provides the framework for what you need to include in the disaster recovery plan for your business.
- Developing an evacuation plan. Protecting your people is a No. 1 priority following a disaster. A clear, written evacuation plan with prearranged meeting spots should be well-documented and communicated throughout the organization. One of the most important factors is being able to account for your people and communicating the steps they should follow after a disaster.
- Developing a shelter-in-place plan. While having an evacuation plan is critical, there may be many situations, such as tornado, flood or air-contamination warnings, when it is best to stay inside to avoid any uncertainty outside. In these situations, a shelter-in-place plan is essential. This will have different elements than the evacuation plan. A disaster recovery team can determine the areas of the building that will serve as its “shelters.”
- Valuing your assets. Every business needs to identify and account for every asset within the organization to determine its financial and operational value to the business. This includes the infrastructure and processes that would be considered the most important to keep the business running.
- Estimating downtime. Once the damages have been evaluated, it’s time to determine how long the business can operate without access to these resources. For example, if a company were to lose crucial data, how long would it take to recover that data to bring the business back to regular operations? As part of this, your insurance professional should be involved in helping to determine and begin the documentation of the affect the downtime will have on your bottom line to ease the claims process for business interruption.
- Identifying offsite workspace. When business operations have been interrupted at a primary location, companies need to determine offsite facilities to secure critical data and store equipment. They also need to designate temporary locations where employees can continue to work if the primary location is compromised.
- Establishing communication protocols.All of your employees and your clients will want to know how this disaster is going to affect them and the steps you have in place to best handle it. It is important to communicate to your employees what is expected of them and how they can continue to be productive. It is equally important to communicate your business continuity plan to your clients and how you will continue to support them.
- Create emergency contacts list. Once a disaster occurs, communicating with your broker is the first step in getting things under control. A broker fully understands your organization’s financial exposure in the wake of a catastrophe. Your broker can work with your business to remedy issues and work with the supporting claims managers to ensure that claims are executed in the best way for your organization.
- Reviewing insurance coverage. Review your insurance policy to determine if you have adequate insurance depending on the weather conditions that impact your area. Meet with a broker to determine Covered Perils and assess the level of coverage for specific weather damage, including wind, storm and flood. Consider expanding the policy to include some level of coverage for perils that may not be that common in your geographic region to be prepared for such atypical events. Also, be aware of the sublimit. For example, under a Commercial Property policy with a $200 million blanket limit, there may be a $1 million sublimit on coverage for loss from a flood, or a $500,000 sublimit on loss from an earthquake.
- Determining succession planning. Organizations have key employees whose loss could make it difficult for the company to recover and resume business operations after a disaster. Succession planning has always been performed on the executive level because it’s critical to have the proper management and leadership in place to ensure business continuity and success. However, a succession plan after a disaster not only outlines the key management, but also non-executive levels in the organization whose roles are important to business operations. A company needs to identify employees who are the key players and then select employees who can step in and assume all or most of the duties after a disaster.
Once the disaster recovery plan has been put into place, it’s important to review the plan on a regular basis to ensure all aspects are up to date.
Kevin D. Smith, CPCU, ARM is vice president of the Philadelphia-based Graham Co., an insurance and brokerage firm. He is the leader of its real estate and international divisions, and also manages the company’s group captive.
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