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A natural or a man-made disaster is but the tip of the iceberg. Planning for the complexity of what lies below the tip is important for every small business. Small- to medium-sized businesses are the most vulnerable in the event of a disaster.“Planning Can Cut Disaster Recovery Time, Expense,” US Small Business Administration, accessed February 6, 2012, archive.sba.gov/idc/groups/public/documents/sba_homepage/serv_da_dprep_howtoprep.pdf. It has been estimated by the US Department of Labor that 40 percent of businesses never reopen following a disaster. At least 25 percent of the remaining companies will close within two years. The Association of Records Managers and Administrators estimated that over 60 percent of small businesses that experience a major disaster close by the end of two years.Darrell Zahorsky, “Disaster Recovery Decision Making for Small Business,” About.com, accessed February 6, 2012, sbinformation.about.com/od/disastermanagement/a/disasterrecover.htm.
Given these odds, planning for disaster recovery makes great sense—even if, in the end, walking away makes the most sense. If a small business owner decides to rebuild, the process can begin after human health and safety are restored, the electricity is back on, and transportation is up and running. Everyone will want life to return to normal following the destruction, but that may not be possible for every small business. The market may change. Conditions may change, and a business must change to succeed in disaster recovery.Darrell Zahorsky, “Disaster Recovery Decision Making for Small Business,” About.com, accessed February 6, 2012, sbinformation.about.com/od/disastermanagement/a/disasterrecover.htm.
In the film Apollo 13, astronauts and engineers went through seemingly endless simulations of what might go wrong on a flight to the moon. The astronauts complained that some of the scenarios were unrealistic and almost impossible to occur. But when a near disaster occurred on Apollo 13, the engineers and astronauts were confronted with a problem that had never been considered; however, because of their prior experience with disaster training, they were able to develop a solution.
Rather than being negative, anticipating what can go wrong can be profoundly positive through either prevention or quickly responding to a crisis. The wise small business owner should appreciate Murphy’s Law (“Anything that can go wrong will go wrong”) and Murphy’s first corollary (“And it will go wrong at the worst possible moment”). The most pragmatic small business owner will also realize that Murphy was an optimist.
The Federal Emergency Management Agency declared 741 natural disasters in the United States for the period 2000 to 2011. Of that number, 66 percent were declared across the following six states: Texas (#1), California, Oklahoma, New York, Florida, and Louisiana (#6). However, every state and territory was represented.“Declared Disasters by Year and State,” Federal Emergency Management Agency, accessed February 6, 2012, www.fema.gov/news/disaster_totals_annual.fema. Planning for the aftermath of severe storms, flooding (e.g., perhaps snow melts too fast), fire, a hurricane or a tornado, a terrorist attack, or—in some areas—an earthquake is the key to getting back to business with a minimum of disruption. Not all businesses will face the same likelihood of these disasters occurring, but everyone faces the possibility of fire, severe storms, and flooding. Every situation will be unique, with the complexity of issues depending on the particular industry, size, location, and scope of a business.“Planning Can Cut Disaster Recovery Time, Expense,” US Small Business Administration, accessed February 6, 2012, archive.sba.gov/idc/groups/public/documents/sba_homepage/serv_da_dprep_howtoprep.pdf. The widespread nature of a the typical disaster means that public services, such as police, fire fighters, and medical assistance, will be unable to reach everyone right away. A business might be going it alone for a while.F. John Reh, “Survive the Unthinkable through Crisis Planning,” About.com, accessed February 6, 2012, management.about.com/cs/communication/a/PlaceBlame1000.htm.
According to a recent poll conducted by the National Federation of Independent Business, man-made disasters affect 10 percent of small businesses, and natural disasters have impacted more than 30 percent of all small businesses in the United States.Darrell Zahorsky, “Disaster Recovery Decision Making for Small Business,” About.com, accessed February 6, 2012, sbinformation.about.com/od/disastermanagement/a/disasterrecover.htm. Man-made disastersA disastrous event caused directly and principally by one or more identifiable deliberate or negligent human actions. are disastrous events caused directly and principally by one or more identifiable deliberate or negligent human actions.“Man-Made Disaster,” BusinessDictionary.com, accessed February 6, 2012, www.businessdictionary.com/definition/man-made-disaster.html. They include such things as arson, radiation contamination, terrorism, structural collapse due to engineering failures, civil disorder, and industrial hazards.“Anthropogenic Hazard,” Wikipedia, accessed February 6, 2012, en.wikipedia.org/wiki/List_of_man-made_disasters. The better prepared a business is, the faster it will be able to recover and resume operations…if that is the decision. Having a disaster plan can mean the difference between being shut down for a few days and going out of business entirely.“Disaster Preparedness: FAQs,” US Small Business Administration, accessed February 6, 2012, sbaonline.sba.gov/services/disasterassistance/disasterpreparedness/serv_da _dprep_howcaniprep.html.
Joe Bogner of Dodge City, Kansas, learned the importance of disaster planning firsthand. He owns Western Beverage, Inc., a beverage distribution company serving twenty-nine counties in western Kansas. In 2002, Western Beverage sustained millions of dollars in fire damage. Yet the company resumed deliveries after just three days. Bogner was named the Kansas City Small Businessperson of the Year for 2006, partially because of his company’s ability to respond to adversity. As his nomination package stated, “Setting up plans of action and following through are Joe’s way of life. He has proven and is continuing to prove that dreams can come true.”“Planning Can Cut Disaster Recovery Time, Expense,” US Small Business Administration, accessed February 6, 2012, archive.sba.gov/idc/groups/public/documents/sba_homepage/serv_da_dprep_howtoprep.pdf.
Four key facts about disaster planning must be kept in mind: (1) disasters will occur, (2) an owner must have a plan before the disaster occurs, (3) react with urgency but do not panic, and (4) ride it out.F. John Reh, “Survive the Unthinkable through Crisis Planning,” About.com, accessed February 6, 2012, management.about.com/cs/communication/a/PlaceBlame1000.htm. If an owner is committed to having a disaster plan for a business, the plan and process can be structured in a variety of ways. For this section, however, the recommendations on Ready.gov serve as the structure for our discussion. These recommendations reflect the Emergency Preparedness Business Continuity Standard (NFPA 1600) developed by the National Fire Protection Association and endorsed by the American National Standards Institute and the Department of Homeland Security.“Plan For and Protect Your Business,” Ready.gov, accessed February 29, 2012, www.ready.gov/business. The recommendations are divided into three areas: plan to stay in business, talk to the people, and protect the investment. The topics discussed here are presented in Figure 14.1 "Disaster Planning". They have the greatest immediacy for a small business.
Figure 14.1 Disaster Planning
A business owner has invested a tremendous amount of time, money, resources, and emotions into building a business, so he or she will want to be able to survive a natural or man-made disaster. This requires taking a proactive approach so that the chances of the business surviving are increased. Unfortunately, nothing can be done to guarantee the survival of a business because there is no way to know what kind of disaster may occur—or when. There is also no way to know what kind of business environment the owner will face after the disaster. There are, however, several things can be done to increase those chances of survival. Resist the temptation to put emergency planning on the back burner.
It is important to look realistically at the types of disasters that might affect a business internally and externally and prepare a risk assessment. Consider the natural disasters that are most common in the areas where the business operates and think about the business’s vulnerability to man-made disasters. Fires are the most common disasters in the United States, and they are extremely destructive to businesses,“Fires,” American Red Cross, accessed February 6, 2012, www.sdarc.org/HowWeHelp/DisasterPreparedness/Fire/tabid/81/Default.aspx. but an owner may not be aware that a community is very vulnerable to flooding from snow melt or that the proximity to a chemical plant makes a business vulnerable to the results of explosions. This is why it is important to prepare a risk assessment so that the business can plan accordingly.
It is said that a business continuity plan is the least expensive insurance any business can have—especially a small business—because it costs virtually nothing to produce.“How to Create a Business Continuity Plan,” wikiHow, accessed February 6, 2012, www.wikihow.com/Create-a-Business-Continuity-Plan. The better the continuity planning is before a disaster, the greater the chances that a business will survive and recover. There are many things that can be done.“Plan For and Protect Your Business,” Ready.gov, accessed February 29, 2012, www.ready.gov/business; “How to Create a Business Continuity Plan,” wikiHow, accessed February 6, 2012, www.wikihow.com/Create-a-Business-Continuity-Plan. The following is not an exhaustive list:
Without good communication, the internal and external structure of a business—and its daily operations—will face challenges that may ultimately lead to its downfall.Kristie Lorette, “Importance of Good Communication in Business,” Chron.com, accessed February 6, 2012, smallbusiness.chron.com/importance-good -communication-business-1403.html. Strong communication skills are, therefore, a vital part of business success. When first starting out, the owner will need good communication skills to attract and keep new customers. As the business grows and new employees are required, these skills will be needed to hire, motivate, and retain good staff.Leslie Schwab, “Small Business: The Importance of Strong Communication Skills,” Helium, June 20, 2009, accessed February 6, 2012, www.helium.com/items/1486526-strong-communication-skills-are-required-for-success-in-small-business. It is for this reason that the employees of a business should play a central role in creating a disaster plan.
Providing for the well-being of all employees is one of the best ways to ensure that a business will recover from a disaster. A business must be able to communicate with them before, during, and after a disaster. There are several recommendations for doing this, including the following:“Plan For and Protect Your Business,” Ready.gov, accessed February 29, 2012, www.ready.gov/business.
The owner must decide how the business will contact suppliers, creditors, other employees, local authorities, customers, media, and utility companies during and after the disaster. One easy way to do this is to assign key employees to make designated contacts. Provide a list of these key employees and contacts to each affected employee and keep a copy with other protected contacts. Each key employee should also keep a copy of the list at home. In addition,“Plan For and Protect Your Business,” Ready.gov, accessed February 29, 2012, www.ready.gov/business. do the following:
Disasters often result in business disorientation and environmental detachment, with the psychological trauma of key decision makers leading to company inflexibility (perhaps inability) to deal with the change required to move forward.Darrell Zahorsky, “Disaster Recovery Decision Making for Small Business,” About.com, accessed February 6, 2012, sbinformation.about.com/od/disastermanagement/a/disasterrecover.htm. If the owner or other key personnel experience posttraumatic stress disorder, it can cripple a business’s decision-making ability.
No matter the disaster, there will be psychological effects (e.g., fear, stress, depression, anxiety, and difficulty in making decisions) as well as—depending on the nature of the disaster—physical effects such as injuries, burns, exposure to toxins, and prolonged pain.John H. Ehrenreich, “Coping with Disasters: A Guidebook to Psychosocial Intervention,” Toolkit Sport for Development, October 2001, accessed February 6, 2012, www.toolkitsportdevelopment.org/html/resources/7B/7BB3B250-3EB8-44C6-AA8E -CC6592C53550/CopingWithDisaster.pdf. As a result, the owner and the employees may have special recovery needs. To support those needs, do the following:“Plan For and Protect Your Business,” Ready.gov, accessed February 29, 2012, www.ready.gov/business.
Last but certainly not least, take steps to protect the business and secure its physical assets. Among the things that can be done, having appropriate insurance coverage; securing facilities, buildings, and plants; and improving cybersecurity are at the top of the list.
Having inadequate insurance coverage can leave a business vulnerable to a major financial loss if it is damaged, destroyed, or simply interrupted for a period of time. Because insurance policies vary, meet with an insurance agent who understands the needs of a particular business.“Insurance Coverage Review Worksheet,” Ready.gov, accessed February 6, 2012, www.ready.gov/sites/default/files/documents/files/InsuranceReview_Worksheet.pdf.
One cannot predict what will happen in the case of a disaster, but there are steps that can be taken in advance to help protect a business’s physical assets, including the following:“Plan For and Protect Your Business,” Ready.gov, accessed February 29, 2012, www.ready.gov/business.
Many, perhaps most, small businesses will have data and IT systems that may require specialized expertise. They need to be protected. The industry, size, and scope of a business will determine the complexity of cybersecurity, but even the smallest business can be better prepared.“Plan For and Protect Your Business,” Ready.gov, accessed February 29, 2012, www.ready.gov/business. Small businesses are the most vulnerable to cybersecurity breaches because they have the weakest security systems, thereby making them easier online targets.“CyberSecurity by Chubb,” Chubb Group of Insurance Companies, accessed February 6, 2012, www.chubb.com/businesses/csi/chubb822.html.
Cybersecurity(click to see video)
An overview of cybersecurity.
Chubb Group of Insurance Companies
The Chubb Group of Insurance Companies provides a very good video discussion of cybersecurity.
Every computer can be vulnerable to attack. The consequences can range from simple inconvenience to financial catastrophe.“Plan For and Protect Your Business,” Ready.gov, accessed February 29, 2012, www.ready.gov/business. There are several things that can be done to protect a business, its customers, and its vendors, including the following:“Plan For and Protect Your Business,” Ready.gov, accessed February 29, 2012, www.ready.gov/business; “Cyber Security Liability Insurance,” Wall Street Journal, March 18, 2010, as cited in Robert Hess and Company Insurance Brokers, May 6, 2010, accessed February 6, 2012, robhessco.com/183/cyber-security-liability-insurance/; Eric Schwartzel, “Cybersecurity Insurance: Many Companies Continue to Ignore the Issue,” Pittsburg Post-Gazette, June 22, 2010, accessed February 6, 2012, www.post-gazette.com/pg/10173/1067262-96.stm.
Frank’s BarBeQue just missed being impacted by a tornado that ripped through southwestern Connecticut. Many small businesses were lost, never to reopen, while others sustained major physical and economic damage. Frank’s son, Robert, asked his father about whether he was prepared for something like that. Frank’s response was troubling. Although he kept some important documents in a safety deposit box at the bank, there was little planning or protection. Robert explained the importance of disaster planning, but Frank was overwhelmed by the prospect of the process.
Robert contacted a local university and arranged with its school of business for a team of five students to prepare a disaster plan for Frank’s BarBeQue. He presented the project idea to his father and was relieved that his dad was willing to participate. It was clearly understood that no proprietary or confidential information would be shared with the students.