Recent events prove that disaster preparation pays off for businesses, so why aren’t more companies taking the time to prep in advance of possible disasters?
By Bridget McCrea
When Hurricane Sandy tore through portions of the Caribbean, the mid-Atlantic and the entire Northeast in late October, it carved out a path of destruction that few could have predicted. The devastating hurricane not only claimed 253 lives, but also created damage and business interruption losses of about $65.6 billion, making it the second-costliest Atlantic hurricane – second only to 2005’s Katrina. Many companies were left under water, burned to the ground, or otherwise unable to open and operate in a “business as usual” manner.
The fact that Hurricane Sandy took its toll on the nation’s businesses should come as no surprise. According to the U.S. Small Business Administration (SBA), businesses invest a tremendous amount of time, money and resources to make their ventures successful, yet many fail to properly plan and prepare for disaster situations. Ignoring the need for such planning can prove fatal for businesses of any size. According to the Institute for Business and Home Safety, an estimated 25% of businesses do not reopen following a major disaster.
“It doesn’t matter if you’re making concrete forms or if you’re making widgets, there’s a set of baseline steps that all companies need to take in order to be able to carry on after a disaster,” says John H. Clouse, a consultant with The Joseph Group, a disaster and recovery consultancy in Owensboro, Ky. “In the case of Hurricane Sandy, for example, everyone knew that the storm was coming, but no one really thought that level of destruction would really take place.”
Most companies ignore the need for good disaster planning and instead stay laser-focused on the day-to-day operational tasks, which is at least partially to blame for the oversight, says Clouse. Other culprits include an “it can’t happen to us” attitude and an unwillingness to put money and time into developing a plan that may never be dusted off and put to use.
“Many organizations just go through the motions of creating emergency plans in order to meet inspector or regulatory requirements, but they never truly develop actionable, useful plans for recovering after a disaster,” Clouse points out. “Also, no one ever considers whether these plans will work or not – via testing and ongoing modifications – in the event of disaster. As a result, the plans are basically useless.”
Measuring the impact
Any precaster who thinks the plant won’t be brought to its knees by a destructive storm, earthquake, fire or other disaster may be surprised by some of the statistics Clouse shared. He says that any manufacturer reliant on computerization – a group that includes most of today’s precast manufacturers – is particularly vulnerable to business interruption due to disaster. Loss of power, which firms in the New Jersey/New York/Connecticut area endured for weeks after Hurricane Sandy, can cripple companies – a full 40% of which will not reopen after going without power for as little as 10 days.
“Even the firms that do open after being without power for 10 days will be closed for good within the following 20 to 24 months,” says Clouse, who adds that very few firms have contingency plans for being without power for 10 or more days. “The assumption is that the power will come back on quickly, but weeks after Sandy we still saw areas of the East Coast without stable electric facilities and solid connectivity.”
Precasters looking to buck the trend can use reverse engineering to come up with contingency plans in the event of power loss or other peril. Clouse says manufacturers should use a checklist similar to this one to start the exercise:
• On a “normal” day product X is on a truck and ready to roll out of the yard
– How did product X get from the raw material stage to the point of being put on that truck?
– Where is the potential for a bottleneck and/or breakdown?
• Is it getting materials from my suppliers?
• Is it in transporting the product away from my plant to the distribution area?
• Is it within my plant, such as internal electricity?
• Is it automation and, if so, can we function without this automation if we lose power?
Using this reverse-engineering process, precasters can pinpoint the weak spots in their operations and/or supply chain and come up with ways to address those bottlenecks. Ignore profitability and sales for the moment, Clouse says, and look only at what it takes to get your precast products from the raw material stage and out the door to the customer location. “If you can’t produce, you’re out of business,” he says, “so look very carefully at what can make your business not function properly and address those issues first.”
Tapping your resources
Planning ahead for disasters and the subsequent recovery phase is comparable to untying a knot. The key is to look for loose ends first and then spend time working those loose ends until the knot is worked out, says Clouse. Once the loose ends are identified (via the reverse engineering process described above), it’s time to look at what internal and external resources are at your disposal and capable of fixing the major issues that surfaced.
In some cases, disaster planning can be as straightforward as an emergency generator in case of power loss and off-site data backup for important files. In other situations, it could mean reaching outside of traditional company boundaries to find external sources of support. A precast company that makes manholes in its New York plant, for example, could partner with an NPCA member in Indiana or Kentucky to temporarily fill orders in the event of emergency.
“That will allow the precaster to maintain a basic level of operation in the event of a disaster,” says Clouse, “and to keep things moving forward while cleanup, repair and recovery efforts are underway.”
Business interruption insurance is another key consideration for precasters, as Greg Roache, president at Gainey’s Concrete Products Inc. in Holden, La., found out in the aftermath of Hurricane Katrina eight years ago. Business interruption insurance (also known as business income insurance) covers the loss of income that a business suffers after a disaster while its facility is either closed because of the disaster or in the process of being rebuilt after it. The coverage kicks in where most standard business insurance policies leave off, namely because the latter only covers loss or damage to tangible items (equipment, inventory, warehouse, office or plant) and not lost profits if your business cannot operate.
Unfortunately, Gainey’s business interruption insurance coverage wasn’t meant to cover the kind of losses that the precaster experienced after Katrina. “It wasn’t until after the storm that we realized our business interruption insurance was only valid under certain conditions,” says Roache. “If our silo had blown over or a power outage caused work to be interrupted, we would have been covered. With Katrina, our customers all went away, and we weren’t covered.”
Roache, who has since added the necessary coverage for the business, says his precast manufacturing firm lost most of its customers and sales – and a lot of its employees – as it dug its way out of the catastrophic storm’s aftermath. He says the firm’s written disaster response planning – which included a written plan, generators for alternate power, employee media training and disaster response testing – all proved valuable during that tumultuous period.
To precasters who haven’t taken the time to plan for the inevitable, Roache says to start now and don’t wait. “You either have to be prepared for the loss of business or insured for it,” says Roache. “Ignore this fact and you may wind up with significant losses and possible closure in the event of a disaster.”
Taking the first steps
As the nation’s businesses move toward a state of normalcy and away from the last disaster, complacency begins to set in. Disaster planning gets put on the back burner, and that “it can’t happen to us” attitude kicks back into gear as business returns to normal. “Any money that was allocated to disaster planning is routed elsewhere, and all thoughts of planning for the worst fall by the wayside,” says Clouse. “Companies – most of which are not situated in areas where disaster strikes on a regular basis – talk themselves out of the need for disaster planning and go about their business.”
Jeff Karrenbauer, president at supply chain planning solutions provider INSIGHT Inc. in Manassas, Va., concurs, and says that even the Fortune 10 companies that he works with “can’t be bothered with planning for the worst.” Most do have some form of disaster planning in place, but much of it is based on traditional phone trees (calling one employee who in turn calls 10 more to alert them of an incident) and other ineffective methods.
“Most companies really don’t have a Plan B that they can turn to when their operations and/or supply chain are interrupted,” says Karrenbauer. “Strategic planning that’s set for the coming year can quickly slip into the next year and no one ever gets around to doing it.” Precasters can get around that obstacle by making the commitment to start disaster planning; getting buy-in and support for the project from the CEO; and assembling a team of individuals (across various departments) to participate in the exercise.
“The most important thing is to lose that ‘it ain’t gonna happen to me – it’s always the other guy’ attitude,” says Karrenbauer, “and realize that it can happen to you and you can do something about it with the proper level of planning, training and preparing for all of the ‘what if?’ scenarios that you can come up with.”
Taking a Proactive Approach
While it’s nearly impossible to predict where disaster will hit next, there are ways to plan ahead for even the most unexpected situations. “It is far more cost- and resource-effective to prevent crises, or minimize the chances of crises occurring, than to merely respond to them,” says Jonathan Bernstein, president of Bernstein Crisis Management Inc. in Sierra Madre, Calif. He advises precasters to tackle the planning process from these four angles:
Vulnerability/Risk Assessment: This is a multidisciplinary risk assessment that determines current and potential areas of operational weakness and strengths and potential solutions, because identified weaknesses may result in emergencies or crises of varying magnitudes if not corrected. “Examine every functional area of your organization to recognize anything that could lead to a significant interruption in business and/or reputation damage,” says Bernstein.
Analyzing and Reporting Results/Writing Crisis Plan: Once the vulnerability/risk assessments are conducted, manufacturers should use the results to identify challenges to effective crisis prevention and response – human or system – and come up with ways to overcome those challenges. Mobilize a “crisis communications team” (made up of key managers, owners and employees) to review and modify the recommendations. The team should also discuss scenarios that are most likely to affect the organization and come up with a final list of “most likely” scenarios. Then create a manual that will “guide the entire organization in the communications aspects of responding to crisis situations,” says Bernstein.
Training: Employee and manager training is one of the most important components of any crisis management plan. Break down the training into these categories: executive/management orientation; employee orientation; and media training (so that employees know what to say when the reporters come calling, for example).
Crisis Plan Testing and Validation through Emergency Exercises and Simulations: How well will your crisis plans, and the people charged with executing them, perform when the next crisis strikes? “The best time to answer that question is before the crisis strikes,” says Bernstein, who advises manufacturers to conduct and/or oversee realistic simulations of crises that could affect the company.
FEMA’s 5-Step Disaster Planning Outline
According to the Federal Emergency Management Association (FEMA), businesses can do much to prepare for the impact of the many hazards they face in today’s world, including natural hazards like floods, hurricanes, tornadoes, earthquakes and widespread serious illnesses such as the H1N1 flu virus pandemic. Human-caused hazards include accidents, acts of violence by people and acts of terrorism, while technology-related hazards are the failure or malfunction of systems, equipment or software.
Here, FEMA maps out the five steps that companies should follow when developing a preparedness program:
1. Program Management
a. Organize, develop and administer your preparedness program
b. Identify regulations that establish minimum requirements for your program
a. Gather information about hazards and assess risks
b. Conduct a business impact analysis (BIA)
c. Examine ways to prevent hazards and reduce risks
3. Implementation –
write a preparedness
a. Resource management
b. Emergency response
c. Crisis communications
d. Business continuity
e. Information technology
f. Employee assistance
g. Incident management
4. Testing and Exercises
a. Test and evaluate your plan
b. Define different types of exercises
c. Learn how to conduct exercises
d. Use exercise results to evaluate the effectiveness of the plan
5. Program Improvement
a. Identify when the preparedness program needs to be reviewed
b. Discover methods to evaluate the preparedness program
c. Utilize the review to make necessary changes and plan improvements
Bridget McCrea is a freelance writer who covers manufacturing, industry and technology. She is a winner of the Florida Magazine Association’s Gold Award for best trade-technical feature statewide.
Leave a Reply