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Winter Journal

Volume 30, Issue 4

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Current and Emerging Trends in Business Continuity
 
Since 2000, our world has seen dramatic changes that have caused an evolution in business continuity thinking. It used to be that recovery-minded organizations focused on preventing and avoiding disasters. Today, it seems inevitable that nearly everyone will be faced with unexpected “bumps” in the terrain from time to time. The focus is changing from avoidance of threat to “landing on your feet” in spite of it.
 
In other words, organizations have found it necessary to become better prepared and be more proactive about risk management. While the imagined “disaster” in a disaster recovery scenario used to be an environmental one – fire, flood, or tornado – thus far in the 21st century we’ve seen likely examples of “disaster” expand to include terrorist attacks with global political implications; strings of powerful hurricanes; international power grid failure; threats such as data worms and hackers; and ordinary business events such as mergers and acquisitions, increased outsourcing of business processes, and application process failures.
 
The bottom line these days is that if it’s disruptive to your organization, it’s a crisis, regardless of the cause. And the pressures for risk management planning are both internal and external.
 
At the midpoint of the first decade of the 21st century, certain trends in business continuity thinking have been established. A consideration of them, as well as several emerging trends, may help clarify what organizations need to consider today in order to prepare themselves for tomorrow.
 

Coverage Could be the Difference Between ‘Staying in Business’ and ‘Out of Business’
 
A fire rages through a restaurant, destroying the structure and leaving employees with no work and the business owner with no income. A property insurance policy will cover the rebuilding of the structure, but will the business survive to occupy the new establishment? How will the owners handle the loss of income while still retaining their trained employees and established clientele? How will ongoing expenses such as payroll, taxes, and utilities be met?
 
The answers to these questions are as close as your insurance agent. Policies exist that can provide coverage for all of these scenarios and more.
 
Business interruption insurance is designed to minimize your risk in the event of a loss. Key benefits include protection against reduced income, payment of continuing expenses, and maintaining salaries of key employees. One restriction is that the interruption or suspension of business must be caused by a covered loss.
 
“I consider business interruption insurance to be business survival insurance. It is an important part of business recovery,” said Michael
Roney, senior director of commercial property at Fireman’s Fund Insurance Company.
Business interruption insurance, also known as business income coverage, covers the financial losses that result from a business suspension or interruption. If an adequate policy is obtained, it can restore a company to the same position it was in before the loss occurred.
 
In some cases, business interruption insurance is included as part of a package property insurance policy, but in most cases it is an addition to the existing commercial property policy.

In early July of 2001, George Richter, president of leading U.S. meat producer, Farmland Foods Inc., was in the midst of leading his company in the expansion and renovation of its 650,000 square-foot processing facility in Albert Lea, Minn. Company progress at the time was very strong and the upgrade of the massive plant was expected to propel Farmland toward even greater growth.

The facility, built in 1912, served as a production center for bacon and ham – two products that accounted for 62 percent of Farmland’s annual revenue. Under Richter’s guidance, it would soon replace the company’s Carroll, Iowa, plant and become Farmland’s headquarters for the two products, producing more than five million pounds of meat each week. On July 8, 2001, however, with the expansion project 50 percent completed, Richter received the devastating news that a fire, inadvertently ignited by one of the contractors working on the expansion project, had consumed the Albert Lea facility.

Insurance companies spend an increasing amount of time helping companies reduce potential business interruption. The reason: it’s a win-win strategy for all parties involved. At least 50 percent of the money commercial insurance companies take in from business interruption claims is actually paid back out to clients. The faster you mitigate a loss, the faster the insurance file is closed. This translates into reduced costs for the insurer and the insured, and reduced company “downtime.”

There’s no time to get your ducks in a row once the disaster has already wreaked havoc on your business. While business continuity planning is a top corporate priority today, many disaster recovery planners fail to realize the ideal plan calls for more than just IT/data backup. Without a plan in place to restore the actual facility/office, business may not be able to continue.

Effective business continuity plans reflect collaborative partnerships between a company and each of its vendors involved in the “supply chain” of the recovery process. Here are a few tips for proactive business continuity planning.

On the pre-loss side:

1) Determine critical areas. What needs to be restored or back in business first?
2) Facilitate a facility walk-through with each vendor and, if possible, the potential adjuster.
3) Understand the business interruption exposure. What is the cost of downtime?
4) Consider how your company will be impacted if a company in your network supply chain goes out of business.
5) Establish pricing structure and rates up front.
On the post-loss side:
6) Set reserves and expectations for the insurance company.
7) Schedule regular meetings to reconfirm priorities and answer questions. Establish familiarity with each vendor’s capabilities and personalities.
8) Communicate ... communicate ... communicate.


Jim Willis is the director of commercial restoration for ServiceMaster Clean. He has 25 years in the industry.

The results of a recently-conducted Harris Poll show there is a significant difference between perception and reality regarding the disaster preparation of the nation’s largest companies. While C-suite executives at Fortune 1000 companies tout their ability to access critical information when faced with power outages, hackers, viruses, and natural disasters, study results show they are not being completely objective in their evaluation.

Problems continue to persist in several key areas of disaster preparation. The majority of executives surveyed admitted to having experienced a disruption in their technology services over the past year. Three years removed from the Sept. 11, 2001, terrorist attacks and one year removed from the Northeast blackout of August 2003, many companies still have not taken proper steps to ensure the integrity and accessibility of their information.

This is a problem that has the potential to affect not only the companies themselves, but the customer base that depends on them. Without a solid information availability solution that gives its employees uninterrupted access to mission-critical systems and data, a company is running the risk of losing revenues, and ultimately customers, every time a disruption occurs. IT professionals who specialize in business continuity and information availability need to be cognizant of the disaster preparedness of business partners and vendors. Will their systems be up and running in the event of a disruption? If there is a disruption, can they provide critical goods and services with which you need to ensure your company is operating normally? No matter how well prepared your company is, are business partners and vendors doing their share of disaster planning?

Here are five key findings from the survey, along with some insights into what the findings mean for both the companies themselves and business partners and vendors.