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Planning for Disaster

(May 2002) posted on Mon Jun 03, 2002

Goodridge explains how to develop and use a disaster plan to keep your business from going under when cataclysm strikes.


By Mark Goodridge

Before I begin, let me make two things clear about this month's column. First, I won't tell you how you can use proactive planning to prevent the seven plagues of Egypt from visiting your business. You manage a screen-printing business, for heaven's sake! The only way to get through the day without having at least one minor disaster is by staying in bed. Second, this article has little to do with the subject of insurance. In fact, insurance gets only a passing mention. This article deals with serious disasters--the type of disasters that turn off the lights in your business and leave you wondering if they can ever be turned on again. Even with the best planning, disasters happen. My discussion will focus on how you can prepare to cope when you're struck with a disaster that can potentially put you out of business. Many different types of disasters are possible. Since you don't know what type of disaster you're planning for, it's best to define disasters by cost. The type of disaster I'm referring to will result in total or near total business shutdown for at least several days and probably longer. With that in mind, let's look at the cost of a business shutdown. What will a disaster cost? Consider, for example, a business with sales of $1 million per year. What does it cost to lose a day's production? For planning purposes, we can assume that there are approximately 250 production days a year (365 days in a year, minus 52 weekends equaling 104 days, minus 10 holidays, give or take one or two.) Therefore, we can assume that an average day's production is worth approximately $4000 in sales. Losing one or two day's production will hurt, but you can deal with it. Losing one or two weeks production is a totally different matter. In evaluating disasters, one of the questions you have to ask is, "How big a disaster, measured either in dollars or in days of production lost, would it take to shut my business down permanently?" Some people believe that being proactive is the best solution. Insurance agents will recommend insurance against fire, flood, and storm damage. They'll also recommend business-interruption riders. Management books and seminars stress the idea that all business disasters can be predicted and prevented. This belief is largely a myth. Yes, some business disasters can be predicted and therefore prevented, but many others can't. Being proactive only goes so far. I live in Maine where tornadoes and earthquakes are rare. Every 50 years, a hurricane roughs up the coast, but you can buy insurance to cover the damage or move 35 miles inland and get an umbrella. We in Maine are too poor and backward to enjoy the attentions of terrorists or urban riots. So you might say disasters in Maine are hard to come by. But then there was the winter of 1998, when an ice storm shut down most of the heavily populated areas of Maine. If you could get out of your driveway, you couldn't go far because the stretches of highway that were not covered by several inches of ice were blocked by fallen trees. And if you could get to work, you couldn't get anything done because a majority of the state was without electrical power for up to two weeks. That will punch a hole in any printer's production schedule. I don't want to argue against the value of preventive planning. Training, insurance, and competent planning will, in many cases, prevent business disasters or at least keep them small and manageable. However, an unforeseeable disaster cannot, by definition, be eliminated. Be prepared for disasters How can you plan in advance to manage a disaster that you can neither foresee nor prevent? That is where a disaster plan comes in. A disaster plan is a tool to help you manage your business after a disaster occurs. Your disaster plan should list crucial information and what you can do to get your business back on line after a shutdown. It should be generic, covering all possible and impossible situations, and simple to use and update. In order to determine what makes up a disaster plan, let's play out a hypothetical disaster. Say a fire breaks out in your facility late one night during the second shift. The fire department, police, and ambulance respond to the 911 call, but by the time the fire trucks arrive, most of the building is, as firefighters like to say, "involved." What is the first piece of information that your shift supervisor should have access to? Contact information (phone numbers and addresses) for you and all the senior managers. The name, phone number, and address of your insurance company and agent, as well as the location of copies of your current insurance policies, should also appear in the first paragraph of your disaster plan.Mark Goodridge Next, you must call your employees. You'll need to talk to some employees immediately. Others just need to be told not to come to work tomorrow morning. You'll need an alert roster listing with addresses and phone numbers of all employees. If you have more than four or five employees, set up a calling system that divides the responsibility of making phone calls between several employees. For example, you call the department managers, they call their supervisors, and the supervisors call the employees they supervise. What about your customers who are expecting delivery of products that you just printed--the ones that are now piles of ashes? Should you contact the customers and inform them that they'll have to manage without those products for awhile? It might be a good idea, or it might be more work than it's worth, under the circumstances. Other information to include What if you have a fire in the ink room? You'll need a list of vendors and the standard products that you keep stocked. Also, it might be beneficial to store a copy of all your color-matching formulas off site. Lose a production line or two? An inventory of all your production equipment, which lists serial numbers, manufacturer, and model number, will be handy. The insurance company will also need that information. Have you lost all or a significant part of your building? What would it be worth to have a list of possible alternative manufacturing locations, such as partially empty warehouses or other manufacturing facilities that could rent you space? After all, it will take longer to get the building rebuilt than to get a production line re-established. What will you do while you're planning your company's resurrection? Can you subcontract your work to other businesses for a few weeks or months? Who will you subcontract your work to? Computer-related disasters are a special category. Consider how much it hampers your business when even one of your computers is down. Now, imagine that you have lost use of all the computers in your art department--even for a couple of days--or what happens if the PC in your ink room suddenly loses your custom formulas? Everyone worries about e-mail viruses (if they don't, they should), but most computer disasters are the result of inadvertent or deliberate damage by an employee. Whoever is responsible for your computer systems should maintain an inventory of all computer hardware and configuration information so that workstations and networks can be quickly re-established. They should also have backup copies of all operating systems, applications, and data files stored off site. All of this will cost money that your business is not generating at the moment. No matter how much insurance you have, it will never cover everything. You'll need to talk to your banker to wheedle more money out of him, of course. His number should be included in the disaster plan. You know what you'll need to bring to your appointment with your banker, and it's not a plate of brownies. You'll need current copies of your profit-and-loss statements, balance sheets, and other financial information. Most likely, your financial records went up in smoke; however, your accountant has information that is current as of last quarter. Call your accountant immediately. While you're at it, call your payroll service too. And speaking of money, who owes you and whom do you owe? You'll still have to deal with accounts receivable and payable, even if your business address is now the cell phone in your pocket. Your disaster plan should cover data backups so that this information is current and available. What other information is useful in your disaster plan? Every business is different, and no one knows your business better than you do. My disaster plan would include a list of consultants, vendor salespeople, former employees, people working in other businesses, and others whom I feel that I could call on for help in an emergency. You'll need all the help you can get, and it's surprising how much help even competitors will give you if you'll just ask. The keeper of the plan What I have described so far is not an all-encompassing list of everything to include in your disaster plan. However, I have tried to hit the critical items and get you thinking. And while you're thinking, consider where you will keep the plan and who will have access to it. Oddly enough, I suggest that the master copy of your disaster plan be kept in your office. It will be secure from prying eyes (some of the information may represent the "family jewels" of the business), yet easily available for updating and regular reviews. However, current copies of the disaster plan should be sent home with every senior manager. Also, a copy of the plan, along with crucial business records and computer backups files, should be stored at an off-site location, such as a safe-deposit box or a lock box in a branch office of your company. You can store most of the information as computer files on CDs or backup tapes. Keep hard copies of only the stuff you will need immediately, such as insurance policies. How often should you review the disaster plan? Schedule a regular review with key people at least once a year. Some types of data, such as insurance records, equipment inventories, and computer backups, need to be added to the disaster plan every time they change or are updated. Will the disaster plan always work? No. If a 747 crashes into your building on the one day a year when every employee is present and in the cafeteria, where you're handing out bonuses, then that's it. Your business is closed permanently. But the good news is that you won't care. I don't intend to belittle tragedy. I just want to acknowledge the fact that not all business disasters are followed by a grand reopening. Some events are final. That too, should be allowed for in your disaster plan. What information do you need if you have to shut down the business permanently? Hope that you never need it.


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