Lessons from the Japanese earthquake teach that no business is immune to potential disaster. Here's how you can prepare for the worst and survive with the best.
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No matter how scant your resources or pressed your schedule, you need to draft a disaster preparedness plan.
Why so dramatic? Because most small- and medium-size businesses (SMBs) don’t make preparedness a priority until they actually suffer a disaster or data loss, according to Symantec’s 2011 SMB Disaster Preparedness Survey. Yet about 65 percent of SMBs are located in regions susceptible to natural disasters. Nearly six out of 10 small businesses (57 percent) don’t have a plan at all. Less than half of SMBs back up their data weekly or more often.
The median cost of disaster downtime is a whopping $12,500 per day. So if you’re hit by a flood, fire or hurricane, you’ll be bleeding revenue just when you need cash to rebuild.
And that’s just the money. Natural and man-made disasters, which include unthinkable events like 9/11-style attacks or swine flu pandemics, also can harm or kill employees and customers, generating both tragedies and lawsuits. Some experts estimate that four out of 10 companies that experience a disaster never recover.
Scared enough yet? Here’s how to prepare.
Start with scenarios and biz needs
“The planning process requires a thorough analysis of the company’s operations, processes and procedures,” says Larry Newell, manager of the risk-services practice at Brown Smith Wallace accountants in St. Louis, Missouri. Basically, identify everything fundamental to serving customers. Then, says Newell, “devise a plan to protect those operations.”
Make sure the business continuity plan is short and clear. No one will read 50 pages of complicated directions. Include specific trigger points that result in assigned tasks or action. So if water starts seeping into the office, Fred knows it’s his job to unplug cords and cables and set computers above the water line.
Like fire drills, disaster drills are a smart idea. “The only way we really know what to do is to practice skills often,” says Dan Weedin, a Seattle-based insurance and risk-management consultant. “It won’t seem mundane when it needs to be used for real.”
Since you can’t predict which critical operations or which essential staff will be out of commission or unavailable, focus on “redundancy” and “flexibility.” In other words, cross-train skills and create several backup scenarios in advance, so if one fails, the other kicks in.
For a sample plan and checklists, see Ready Business, which was created by the Federal Emergency Management Agency to help foster small-business preparedness.
Steps to putting a plan in place
Several areas are critical for keeping a business up and running after a disaster. Of course, each area depends on the others to be effective overall. Here are some of the most important steps you can take:
- Get insurance. Don’t roll the dice. “Meet with your insurance broker to identify your exposure and design an insurance program,” advises Dawn A. Houpt at the Graham Company, a Philadelphia brokerage. Besides appropriate property and casualty policies, also consider business interruption coverage, which replaces lost income. Or, if possible, start setting aside emergency cash reserves. Your business may go several months without income.
- Identify key employees and vital functions. Plan for how you will work around scenarios in which one or more key staff members can’t come to the office or are incapacitated.
- Communicate early and often. Every shop is different, but the objective is simple: Keep everyone in the loop and on the right track in order to reduce anxiety and confusion.
That means maintaining up-to-date contact info for all employees and outside contributors. Put someone in charge of monitoring the contact list. Set up advance guidelines for staying in touch, whether via texting, posts on a microsite or intranet, or a phone tree.
In the immediate aftermath, you’ll need to provide details about the disaster’s effect, what employees must do, whether they need to work from an alternate site (like home), who needs to perform which tasks, and how long all of this might remain in effect. Remember to include independent contractors, accountants, publicists, investors and key vendors. If staff will be scattered in remote locations or working at home, set clear expectations about how and when everyone should be at his or her desk or on call.
- Protect data and information. Back up important records and computer systems in several locations. Keep records updated in case you must verify operating costs and income for disaster agencies, insurance carriers or banks. Consult your IT expert about cost-effective backup solutions and, depending on your industry, maintaining compliance with state or federal regulations. If you’re hanging on to old paper files — lawyers, that means you — recruit some help to scan the works. Now.
- Evaluate IT and remote-work capabilities. Given today’s affordable options in telework and remote access, IT may be the easiest part of a plan. The solutions you deploy or beef up are dictated by your needs, budget and sophistication and may involve VPN ports, webcam videoconferencing, VoIP, cloud computing solutions, and so on. Again, have a detailed chat with the IT staff or a consultant.
- Keep the plan timely. “Update, test and re-evaluate your plan annually,” says Kevin Bremer at ModSpace, a modular-building provider in Berwyn, Pennsylvania. Then periodically check to make sure every employee has an up-to-date version. Keeping the plan on a shelf somewhere won’t help anyone.
Providers put average costs to a small business for a preparedness plan at anywhere from $5,000 to $20,000, depending on what’s in place and what’s required.
That could be the most cost-effective investment you ever make.