Canadian Underwriter

BUSINESS CONTINUITY: do you have a plan?

April 1, 2001   by Karen Rutherford and Gerry Myer of the Crisis Tool Group

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Business continuity planning is a time-consuming and complex process. However, it is the absence of this planning that hurts most organizations financially after a loss. Anyone who has suffered a major loss will understand the importance of a well thought out continuity plan. The reason for building a plan is simple: survival.

Business continuity planning allows the organization to plan what to do in the event that one of more than 200 possible disasters may befall a company. This is a critical phase in risk management because even with the most sophisticated insurance program, approximately 65 on the dollar will be paid by the insurance industry and the balance will be born by the insured. A business continuity plan can help minimize the financial impact.

A good plan looks at ten areas that will be affected by loss, and not completely covered by insurance, and builds the best possible response. The duties and responsibilities are written and shared by several key employees. This distribution of duties will leave the main decision-maker free to spend time working on critical business issues including negotiating with legal council and with insurers. In the absence of a plan, senior resources will be stretched to deal will multiple tasks better suited to well trained support staff. For example a press release thoughtfully written in advance of any disaster will help an organization avoid PR disasters. It does not take long to come up with examples of organizations missing the PR boat. (The Exxon Valdez pops to mind or Firestone Tires compared to Tylenol’s quick response to their tampered bottles.) A plan offers senior management a chance to carefully think through what needs to be said, draft a response and then allow an individual within the company to handle the media and external communication to clients and suppliers freeing decision makers to deal with other critical issues.

Thinking ahead

While working with companies we discovered that fast easy answers were generally the wrong answers. In the absence of a continuity plan many decision-makers gave the same pat answers to questions. A typical example of which is:

Q. What will you do with your staff during the interruption?

A. “We will keep them on, we are one big family and we take care of our own.” This answer is almost always wrong. Forcing decision-makers to look at the actual cost of that decision will almost certainly produce a different answer.

Making decisions under stress often produces catastrophic results. Faced with a major loss, the immediate actions facing management are typically: Who to call first? What staff have to be involved now, and where are their phone numbers? How should customers be dealt with during the recovery period? Can you get replacement product for them or do you have to send them to a competitor. If you do, will they come back? What are the name and contact people at your key customers? Who should contact them? Would a press release help? What would you say?

The following case highlights the kind of “hidden weaknesses” that can reside in an organization unprepared with a business continuity plan. Several years ago in a prairie city, an association to aid young people in trouble decided to open a restaurant as a social aid program. The business was used to train program members and thereby provide them with a work skill. The venture proved to be a roaring success and enabled the association to expand the operation (local restaurants also began hiring graduates of the program). All appeared well, and the association purchased a comprehensive insurance program to protect its assets.

However, the real risk exposure facing the enterprise was revealed following the outbreak of a devastating fire. This resulted from an estrangement of opinions between the association’s risk manager and some of the board directors, which led to lengthy delays in processing the loss information. As a result, the insurer questioned the business interruption claim. More discussion, lack of agreement and a delayed insurance settlement caused bankruptcy. Reputations were damaged and the community lost a valuable resource. All because they did not have an emergency business recovery plan.

Creating a business continuity plan is one of those duties that need a project leader with the skills of a broker or risk manager. A good plan takes shape over time. To be successful it must have the support of the key decision-makers including the CEO and CFO. A good software package to support the initiative as well as a reasonable timeline will start the planning process. It is important that risk managers and brokers remember that their role should be to ask all the right questions and provide none of the answers.

Open-ended approach

The skill of asking open-ended questions is critical to helping an organization through this process. It is interesting to discover that many people can’t even think of “ten open-ended” questions to ask.

Lead your organization through this process, and you will know your organization better that any other individual. Will that be an asset? Can you leverage this knowledge? Experienced continuity planners the world over will answer with a resounding “yes”. There are several ways to begin the process:

Putting together a presentation to get top management “onside” is the first step.

Once you have the commitment from the top, you will need to create a manageable time line. It is critical that you allow periods of reflection after each planning session to ensure that you haven’t arrived at an easy answer, but rather an answer born of thought. Any plan built in a day or two will not stand the test of time. Three months seems to be a reasonable period for most organizations.

For a plan to be successful it needs to include several people throughout the organization who have had the opportunity to participate and have embraced the ideas and decisions made.

The plan must also be readily available to key players. Leaders in the various areas need to have a hard copy off premises and easily accessible.

The plan must ultimately be simple to implement. This will require some sort of trial run.

The use of a planning template, available in an interactive CD, such as the Crisis Tool, will simplify the entire process.

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