Protecting Your Business Against a Disaster – Easier Than You Think!

With the 2010 hurricane season just around the corner, the news media will soon feature pieces on disaster preparedness. This concern assumes greater urgency this year, as forecasters expect an above-average storm season. No doubt vivid images of damage from previous storms, such as Hurricane Katrina, will capture attention. But this approach actually undermines preparedness! As a business owner, you need to think about the trivial events first.

Before you discount that statement, let me say that when I was an executive in the reinsurance industry, my responsibilities included advising senior executives of global corporations in respect of their disaster preparedness and business continuity strategies. I would ask them to envision a spectrum of risks. On the far left side, we have the “high frequency/low severity” risks or disasters. These are the everyday disasters, such as human errors, computer crashes, power outages such as blackouts and brownouts, and the like. These disasters occur all of the time, but they are not typically catastrophic. At the other end of the spectrum are the “high severity/low frequency” events such as major natural disasters: hurricanes, earthquakes and the like. Events such as fires, floods and environmental hazards fall somewhere in between. As a professional risk manager, I would advise my clients to prepare for the everyday risks, which approach offers the following advantages:

• Immediate benefits
• Against more imminent threats
• At more affordable costs
• While building resilience to the more serious, but less likely, threats

This is a fundamentally different approach than focusing on the current serious threat, which you are less likely to experience. I know because I put this approach into practice myself. My small business was located in the “Zone 1” of the World Trade Center on 9-11. My business remained up and running and is profiled in the “Ready for Business” campaign of the Department of Homeland Security.

Of course, a carefully crafted insurance program, consisting of appropriate property and liability coverage is the foundation of your disaster preparedness plan. But remember that an effective disaster plan will highlight particular areas where you may need additional coverage.

The following are tips to get you started in crafting your own disaster preparedness plan:  

1. Start by identifying the critical assets of your business. For a restaurant, for example, it is location, location, location. So a civil emergency that would impede pedestrian access would cause your business to lose revenues. For an accounting firm, a critical asset might be the safety and security of client financial records. For a software developing company, it would be the intellectual property of the lines of software code that they have written.  
2. Think about how you might protect the business against that risk. For the restaurant example, business interruption insurance would be important to replace lost revenues. For the accounting firm, secure data backups are especially important. For the software company, it would be important to preserve off-site copies of software code written to date. Notice how this approach differs from the traditional paradigm that you focus on ensuring your physical assets. If an accounting firm loses its client data, the financial losses could be greater than what could be caused by a fire burning down the office and its contents. Office furniture, personal computers and the like do not drive the economic value of an accounting firm, but insurance programs often focusing on insuring such physical assets without thinking about the intangible assets that are often more important. So give some serious thought to how best to protect the critical assets of your business. 
3. Think of what risks are unimportant to your business to craft an insurance program that is cost-effective. Leasehold insurance, for example, protects your business for the increased cost of leasing space following a disaster. If your business is, for example, a manufacturing business that requires many square feet of contiguous space, paying the extra cost for leasehold protection may make sense. Because my business has fairly flexible space requirements, I forego such coverage. Buy only the insurance that you need; don’t pay for what you can do without.
4. Think about inexpensive ways to build in redundancy. One recommendation I have, for example, is the buddy system, a small business with which you could co-locate hardware and have reciprocal access to one another’s offices during periods of disruption. This would give you redundant office space without the expense of paying a second lease. Of course, you would choose a buddy who is not a competitor in your industry. 
5. Include personal disaster plans for your employees and their families in your business preparations. This is not only the right thing to do; it will build support for your business plan as employees see the benefits of this approach for everyone. And, after all, how productive would you expect your employees to be if they are worried about the safety of their families?

This framework of preparing for an everyday disaster is applicable to a diversity of businesses and locales. Consider the experience of small businesses in the U.S. Gulf Coast. I recently returned from New Orleans where I delivered a training workshop to a local small business assistance group. The executive director told me of one of her clients who had, after painstaking effort had rebuilt his business from the losses inflicted by Hurricane Katrina. He was enjoying the winter, although he knew that the hurricane season would return again and he would again face the possibility of severe natural disasters. But he never had that opportunity, because his business burned to the ground in the off-season. He had not put data backups in place, because he was watching the hurricane calendar and thought that time was on his side. (I heard a very similar story about a Canadian small business after Newfoundland had been evacuated when Hurricane Juan moved up the Atlantic Ocean.) So the key message here is: prepare for the everyday disaster and this approach will address the more serious, and less likely, threats.

Donna Childs is a small business owner, former senior executive of one of the world’s largest reinsurance companies, and the author of "Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses". Her blog can be found at www.preparedsmallbusiness.com.