Depending on where an organization is located, the phrase "natural catastrophe" may encompass hurricanes, floods, earthquakes, hail, tornadoes, blizzards, landslides and possibly tsunamis. Whatever peril an operation faces, however, a successful risk management approach to natural catastrophes comes down to taking four key steps–knowledge, planning, practice and action.
The first step in preparing for a natural catastrophe is to know what exposures your facility faces. Think about your building's location. Is it in a floodplain? Is there a hill with landslide potential behind the building? Is there only one road providing access to your facility that falling trees can block?
Developing a risk management plan that addresses each individual natural catastrophe risk facing your facility–and how you would respond to it–can help reduce the impact of the event on your operation.
Once you have determined your facility's exposures, the next step is to evaluate the natural catastrophe risks facing your critical suppliers. A catastrophe that impairs a key supplier can cause as much interruption to your business as if the catastrophe impacted your facility directly.
Part of this evaluation should include a review of the processes that occur within your facility. For example, we determine which processes are critical, what could interrupt them, and what is necessary to keep the facility functioning.
All of these points must be clearly understood by the risk management team before proceeding to the next step–building and implementing a plan. This is where the knowledge gained through the previous steps is used to develop a detailed plan.
If a basic emergency plan is not already in place, then one should be built. A basic emergency plan addresses issues such as employee or tenant evacuation and notification of emergency personnel. Once the basic plan is developed, it should be expanded to address natural catastrophe contingencies.
The answers to questions regarding facility location and the type of catastrophes a company and its suppliers face will drive plan details.
If the facility is located in a floodplain, consider incorporating details for keeping water out of the building, relocating equipment, and having an emergency generator available.
Facilities located near a hill with landslide potential should have plans that include consideration of barriers to divert earth or providing vegetative cover to the hill might be appropriate.
If the facility is only accessible by a single access road, having equipment on hand to remove fallen trees and a prenegotiated, signed contract with a local removal firm may be part of the plan.
If the process is dependent on a single supplier whose plant has hurricane exposure, contracting with additional suppliers can lower the chances a facility will be interrupted if a natural catastrophe strikes a key supplier.
There are two other common natural catastrophe exposures and corresponding risk management tactics to consider:
o Hail occurs across the country, but has a bulls-eye on Oklahoma and the Dallas/Fort Worth area–especially in the spring and early summer. Any organization that plans to have a facility in the area should consider building with an impact-resistant roof and exterior wall coverings. It should also think about protecting roof-mounted equipment, such as HVAC units, with devices such as hood-style projections that shield condenser coils.
Also, install protective screens over skylights and conduct regular roof inspections to monitor conditions as well as help ensure that all these protective measures remain in good condition.
o Tornadoes also occur throughout the country, though there is a higher concentration of F4 and F5 storms on the Fujita scale in the central U.S. "tornado alley." While it is impractical and prohibitively expensive to build structures that can withstand these tornadoes, a well-thought-out plan that directs employees and visitors to shelter areas should be in place.
Regular drills for employees are also necessary to help protect them in the event of a tornado.
The next planning step is to appoint members to a catastrophe team and develop action checklists to help the team prepare for a peril. Each team member should be assigned a specific task on the checklist. It should be determined who is responsible for each preparation activity, what key equipment needs to be on hand, and what key production equipment needs protection.
The catastrophe team leader must have authority to implement the action plan, and members should know who is responsible for each activity during the actual occurrence as well as during recovery.
Part of the planning process should include discussions with a broker about insurance programs, making sure adequate and appropriate insurance is in place.
For example, if the facility is in a floodplain, ensure that there is flood coverage appropriate to the exposure. If production faces a service interruption exposure, the broker should be asked about the need for contingent business interruption coverage for the loss of a key supplier.
Once a catastrophe team is identified, a pre- and post-catastrophe checklist needs to be developed and put in place that includes an appropriate insurance policy. Next it is time to put the plan to the test.
Before the need to activate a plan, it is important to ensure that the plan takes into consideration all possible catastrophe scenarios. Practice makes perfect, and employees who are trained are more likely to implement the plan effectively and without panic. Mock drills in which the plan is activated for a specific catastrophe should be held, where participants walk through the action checklist with team members and other key individuals.
Conducting mock drills often reveals situations that had not been considered. This allows for modification of the plans to reflect any new findings. The process should be repeated for each catastrophe scenario facing the facility so that the plan can address the requirements of each.
When setting up mock drills, it's important to remember that the less warning time available for a particular catastrophe, the more practice is needed to ensure that employees can take the proper actions.
For example, tornadoes have a limited amount of notification time (a half hour to a few minutes). Therefore, the team's focus should be on quickly getting people to shelter areas.
For hurricanes, which often have several days of warning, the team would have extensive preparation time to protect not only employees but also physical property.
It is important to hold mock drills annually to ensure that any changes within the facility or to its exposures are taken into account. The plan should be updated whenever a team member leaves the company; a plan that is not practiced and updated regularly will often fail when put to the test.
Once the plan is in place, has been thoroughly practiced and all contingencies have been addressed, the planning and practice will come into play when a catastrophe threatens.
As the peril approaches, the plan is activated by the individual(s) responsible to prepare the facility, protect equipment and alert contractors.
As the peril hits, the team monitors conditions and adjusts the plan if necessary. Once the peril has passed, contractors whose services have been secured in advance are contacted and actions are taken to repair and bring the facility back into operation.
For an impending hurricane, this process could include:
- Placing protective covers on window.
- Properly securing doors.
- Covering loose objects in the yard or bringing them inside.
- Notifying emergency generator suppliers and taking steps to ensure that equipment will be available in the aftermath.
- Evacuating people as necessary.
- Shutting down critical processes if needed.
Once everything has returned to normal, the process begins again. Now it's time for the risk management team to analyze what happened, what worked, and what improvements or changes are needed.
Natural catastrophes can occur anywhere, and a risk management team needs to be prepared for them.
Proper analysis of and planning for exposures followed by corresponding preventative measures can help keep a facility functioning during an event or reduce recovery time afterward.
With a risk management plan and the appropriate insurance policy in place, the risks facing an organization's operations can be greatly reduced.
Charles Bauroth is technical operations manager for Liberty Mutual Property in Boston. He may be reached at Charles.Bauroth@libertymutual.com.
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