The Time Has Arrived For Disaster Recovery Plans

By Jim Jordan

Jim Jordan is director of construction services for Dallas/Fort Worth-based Weaver and Tidwell LLP.

If a natural disaster hit your business, would it be able to survive? In the wake of hurricanes Katrina and Rita, many businesses for the first time are giving the question serious consideration. And they should. According to Fireman's Fund Insurance, 40 percent of all businesses hit by a disaster close within five years. The primary reason, experts say, is that far too many companies never give a thought to disaster recovery planning. In fact, such planning has been practically non-existent, despite the growing number of natural disasters that have occurred in the U.S..

With the lessons of recent natural disasters fresh in mind, contractors large and small should create formal disaster recovery plans. The effort is simply another investment in the business. The process should begin with a simple question: If the company's administrative offices and at least some equipment were destroyed, would the business be able to rebound? Statistics show that for a business to have a chance of surviving a disaster, it needs to be operating again within five days.

A team composed of members from all departments should be assembled to evaluate the critical items needed for operations to continue. Although disaster plans may vary in scope and emphasis, their initial focus should be on the protection of employees, the security and retrieval of administrative data and access to working capital.

Here are some key points to consider in the development of a recovery plan:

Protecting employees and administrative data In terms of employees, physical safety is the primary concern. All contractors should assess how dangerous their offices and job sites might be should a natural disaster strike. Once necessary steps are taken to reopen and enhance safety, contractors need to develop systems for employees to communicate with each other from remote locations.

Protection of data is critical. Losing power for a few days can cause operations to cease temporarily, but the loss of data can be grave. Any information that affects day-to-day operations should be saved off-site.

Protecting capital is perhaps the most misunderstood aspect of disaster planning. A natural disaster may halt a firm's operations, but not its obligation to make loan payments and pay employees. Providing a timely method to pay employees when the payroll system is inoperable is essential.

Prior to a disaster, contractors should visit with their bankers to devise a financial contingency plan that can be enacted if operations are suddenly interrupted. Emergency lines of credit can be discussed in advance. Lenders can help create an emergency plan that would temporarily suspend or reduce loan repayment schedules and provide information on disaster assistance loans offered by FEMA and the Small Business Administration. Information on SBA loans can be found by logging on to sba.gov.

For contractors, disaster planning is particularly critical because any disruption of operations can halt projects in progress. Although project owners nearly always allow some flexibility on deadlines, contractors should always request and document extensions in accordance with the contract documents.

Sufficient insurance One way to protect assets and provide a source of funding is to purchase sufficient insurance. Contractors should purchase three types of insurance: property, liability and business-interruption.

Business-interruption insurance can go a long way in helping a devastated business stay afloat. It pays what a company would have earned had it not been hit by a disaster. But it is not sold as a policy by itself. It may be added to a property insurance policy or included in a package. Make sure its limits are sufficient to cover your business for more than a few days.

Insurance is expensive, so it's important to have the amount you need, but not much more. Have enough to get the company back on its feet without exhausting available cash.

Employee safety, protection of data and financial continuity are critical issues in the development of any disaster recovery plan. However, they are only a departure point. There are countless other issues that need to be addressed, and many are easy to enact. For example, companies should store an adequate supply of checks and purchase orders off-site.

No business in America is entirely safe from a natural disaster. That's a fact too many of us overlook.

Are you prepared if the lights go out?