By Peter Kinsley

Disaster struck in 1992, when Hurricane Andrew pounded South Florida, knocking down buildings and sweeping away inventory and vital documents. Some of the companies never recovered.

It happened in 1993, when the Mississippi River poured over its banks, driving thousands of Midwestern businesses from their flooded factories and destroying millions of dollars in equipment and inventory. Some of the companies never recovered.

It happened again in 1995 when a fire erupted at a regional bank in Minneapolis, destroying the building and the bank’s offices. The fire consumed everything in its path except the vault and the bank’s records, which were stored inside. Because this vital information was protected, the bank was able to resume normal operations in temporary quarters in a matter of days.

In preparing its Disaster Recovery Plan, this bank realized that its information was critical to its business and also its chief vulnerability. As a result of the process, the bank took the steps necessary to protect its information. Had it not, bank employees may have spent weeks or months recreating these documents.

In 1995, catastrophic disasters cost the worldwide insurance industry around $180 billion. By 2000, the insurance industry expects that figure to reach $360 billion. And while destroyed homes made headlines, businesses accounted for 70 percent of the dollar amount lost during these disasters.

Disasters aren’t necessarily natural catastrophes. Depending on the business, disaster can be the extended loss of telephone service and, by extension, data transfer capabilities. With today’s reliance on computers, system crashes and other events can instantly destroy vast amounts of important information. Other sources of disaster include weather events, fire, job action or bomb threats.

While there is no definite way to calculate the cost of even a minor disaster, imagine the consequences if, in a particular business, the most important resource or asset simply disappeared for a day, or a week, or longer. After calculating the cost of replacing the resource — or the lost productivity while an operation is disabled — try determining the cost of lost opportunity.

The insurance industry estimates that for every $1 of insured loss, there are $3 of uninsured economic loss. Businesses that can resume normal operations in the shortest amount of time can limit their lost profits and lost opportunities. One of the best ways of doing that is to develop a disaster recovery plan. Companies which have critically high-value risks, or difficult-to-replace assets, can especially benefit from this process.

A disaster recovery plan actually comprises two individual planning efforts. Emergency planning establishes a structured, effective emergency response at the time of a disaster. Business contingency planning establishes an operations strategy that helps the company resume normal operations in the shortest amount of time. Taken together, these plans outline the steps a business needs to take to get back on its feet quickly.

Emergency planning typically encompasses the first 36 hours after a disaster occurs. This planning effort is designed to improve the quality of decisions, which frequently have to be made quickly and without a great deal of information. In preparing an emergency plan, there are four basic components that need to be addressed:

• Direction and control — Who is in charge and what are the lines of communication? What other responsibilities will be pre-assigned?

• Alerting and Warning — How will employees, emergency response services, local government and neighbors, if necessary, be told of the emergency?

• Facility Shut Down — Under what conditions should a shut down occur, and who is responsible for making that decision?

• Evacuation — Under what conditions should an evacuation occur and who should make that decision?

Business contingency planning has five areas to examine.

First, contingency planning should consider the possibility of a total or partial loss of the company’s plant and facilities. The potential loss of equipment and processing capabilities should also be considered and recovery efforts planned.

Second, certain stock or supply items can be difficult to replace or may damage easily. The contingency plan should look at ways to replace these items. It should also look at ways to replace the lost supply lines and re-route production when inventory accumulates beyond the ability to store it.

The third area refers to management issues and systems. In a time of crisis, strong leadership is vital. A management framework needs to be in place to account for the absence of any top level managers and to support the outlying offices.

Companies dealing with disaster frequently face a number of unexpected personnel issues. Contingency planning should include measures to deal with a range of these issues, from replacing a large number of workers who are absent to providing for the emotional well-being of employees.

Finally, it is a little known fact that in the event of an area-wide disaster, most telephone companies shut-off general telephone service, freeing the system up for priority or essential service customers such as hospitals, fire departments and the police. A contingency plan should anticipate the loss of telephone service for at least three days.

Clearly, there are a number of issues that must be considered when developing a Disaster Recovery Plan. Atlantic Mutual Loss Control can help a business in the initial steps, such as identifying the ways that a particular business is exposed to disaster. Most companies will have to seek a qualified consultant to actually write and test the plan.

Preparing a Disaster Recovery Plan is a time-consuming process. It requires a solid commitment from management to invest perhaps several hundred man-hours in preparing the plan. The plan must also be accepted company-wide and periodically tested and revised.

Without a doubt, the best time to prepare for a rainy day is when the skies are sunniest. And having a plan is like having an umbrella. It won’t keep the rain from falling, but it will keep the company from getting soaked.

Peter Kinsley a Certified Safety Professional since 1983, has more than 22 years experience in professional loss control. He is currently the Manager of Property Services for Atlantic Mutual Companies. Kinsley can be reached for comments at peter_s_kinsley@atlanticmutual.com.

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