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Bracing for the worst: Key elements for your company’s disaster plan

By Bridget McCrea

The folks at United Electric Supply, Inc., in New Castle, Del., have a lot in common with the many companies that suffered setbacks when Hurricane Sandy carved a path of destruction through eight Northeastern states. Eight years earlier, with little advance warning, the distributor’s headquarters fell prey to a tornado that was part of the remnants of Hurricane Jeanne. Much of United Electric’s headquarters was destroyed on that fateful day in 2004.

Fortunately, the company had spent months working on a detailed disaster-recovery plan that was built around a 72-hour “back in business” time frame in the event of disaster. Tom Cloud, company chairman (and CEO at the time), says United Electric’s disaster planning started in 2001, when an auditor mentioned the words “disaster recovery plan” to him during a meeting.

“I’d never really heard of such a thing,” recalls Cloud. “We were backing up all of our data on tapes nightly, but didn’t have a contingency plan in place to be able to stay in business if, say, our building were to burn down.” The idea stayed on Cloud’s mind but didn’t come to the forefront until September 11, 2001. “It was at that point we realized that bad things really do happen,” he recalls, “and that we needed a disaster recovery plan.”

Working with a consultant who specialized in such plans, Cloud and his team spent 18 months developing a plan of action to address a range of catastrophes that “could happen.” The project wrapped up the day before the tornado would inflict its powerful wrath on the distributorship and surrounding structures. After accounting for and evacuating all employees, Cloud and his team assessed the damaged building, which was quickly condemned as unsafe by the county.

“We weren’t even allowed in our own building,” says Cloud, “but we had a disaster recovery plan that was designed to get us back in business within 72 hours.” Key aspects of that plan included finding a temporary home for the distributorship, setting up a remote network for the company’s branches to tap into, ordering a one-month supply of inventory, requesting 60- to 90-day payment terms on those orders, and alerting customers about the fact that United Electric would be back in business and servicing their needs quickly.

Next came the rebuilding – a process that local contractors said would take three months to complete. “We doubled that number and got temporary space on a 6-month lease,” says Cloud, who feels that the incident – while extremely challenging – actually strengthened the $180 million, 300-employee company. “In the end it was a very good bonding experience that we came out of an even better company than we were before.”

Good Planning Pays Off

Unfortunately, disaster planning isn’t top of mind for today’s companies. Most wait until the inevitable occurs and then scramble to clean up the mess and hope that they can piece things back together quickly, and with minimal impact. “From my experience 95 percent of U.S. companies are either completely or seriously unprepared to manage a crisis,” says Jonathan Bernstein, president of Bernstein Crisis Management, Inc., in Sierra Madre, Calif.

Last year the global crisis management sector hit a new record in economic losses when it posted total losses of $265 billion for the first two quarters of 2011 alone. That was higher than the previous record of $220 billion set in 2005, according to Munich Re, a global firm that insures insurance companies. A significant portion of that impact can be tracked right down to the state, regional, and local levels, where companies of all sizes and across all industries reported operational and revenue losses as a result of the events.

Small to midsized firms are particularly vulnerable because they lack the board of director’s guidance provided to their larger counterparts. Busy putting out daily “fires” and handling pressing tasks, owners and managers rarely put the time necessary into proactive thinking and planning on the crisis management front. Unfortunately, that way of operating puts manufacturers in a bad position when a product fails, a public relations debacle surfaces, or a natural disaster occurs.

“If a big firm is hit it may have the deep pockets to survive the crisis,” Bernstein adds. “On the other hand a single, nasty crisis – whether it is a reputation issue or the loss of physical facilities – can be downright devastating for the smaller manufacturer.”

Creating a Roadmap

The good news, as United Electric found out in 2004, is that 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 Bernstein, who advises distributors to tackle the planning process from these four angles:

  1. Vulnerability/Risk Assessment: This is a multidisciplinary risk assessment that determines current and potential areas of operational weakness and strength and potential solutions, because identified weaknesses may result in emergencies or crises of varying magnitudes if not corrected. Examine every functional area of an organization to recognize anything that could lead to a significant interruption in business and/or reputation damage.
  2. Analyzing & Reporting Results/Writing Crisis Plan:  Once the  vulnerability/risk assessments are conducted, distributors 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.  
  3. 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).
  4. 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 distributors to conduct and/or oversee realistic simulations of crises that could affect the company.  

Cloud, who after his own firm’s crisis conducted several disaster planning sessions with NAED members, says having an organized, definitive plan in place can mean the difference between business continuity and having to close up shop permanently. “Take some time to come up with a 10-point plan and then build on things from there,” says Cloud, “instead of waiting until it’s too late.”

McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.

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