By Diane M. Calabrese / Published September 2019
It’s amazing how many things go right. The days, weeks, and months have a comforting rhythm to them. Occasionally, however, something happens that disrupts the tempo of life. We must be prepared.
On one level, dealing with an adverse event is a personal matter that encourages us to draw on strength we have been trying to build. There’s a more general level, though, and that’s how an event affects a business.
The Department of Homeland Security (DHS) takes seriously its charge to look for clouds in the otherwise sunny sky. At its website, Ready.gov/risk-assessment, DHS offers a primer on risk assessment.
Scenarios in the what-could-possibly-go-wrong section of the primer highlight the many kinds of disruptive forces. It divides hazards (or forces) into three big categories: natural, human-caused, and technological.
Meteorological, geological, and biological hazards fall into the natural category.
Subcategories are quite thorough. Sinkholes are listed along with earth-quakes, among geological hazards. And pandemic disease is included in the biological group.
Human-caused hazards have two divisions. There are accidents—workplace and transportation. And there are intentional acts—from labor strikes and demonstrations to hostage taking, terrorism, and cyberattacks.
Technological hazards include loss of connectivity, utility outage, structural damage to workplace, hazardous materials in workplace, and chain interruption (failure of supplier or transporter.)
It is so comprehensive that it can weary even a bright-eyed opti-mist, but the DHS primer serves as abundant evidence that trying to guess what will go wrong—if something does go wrong—is nearly impossible. Many risks (e.g., accidents) can be reduced by safe practices, but others are just beyond our control.
At some juncture, most businesses will confront a disruption. Over-coming the disruption will be a must. Whether it’s a small perturbation, such as a power outage caused by a driver-downed utility pole, or a large event, such as a power outage caused by hacking of the grid, composure should be maintained.
“Teach yourself how to become calm and detached from the turmoil that may have been created,” says Bill Sommers, president of Pressure Systems Industries in Phoenix, AZ. “Then act accordingly with thought to the relative seriousness of the situation.”
Anger or fright hinder a measured response to a negative event. Moreover, reacting with agitation to a minor negative happening wastes energy and may slow the process of putting things right.
Many disruptions are actually of the prosaic kind. They are nuisances. They will not harm people or destroy a business. A common one is the breakdown of a supply chain, which can often be avoided with a strong emphasis on better communication.
“Disruptions from vendors generally occur because of communication problems from both ends,” says Sommers. “There is an 18 by 18 poster that I printed and hung on the wall which states, ‘Do NOT speculate!’ Only work with
Candor may not immediately overcome a disruption. Yet a forthright statement explaining difficulties in the resolution of a problem reduces tension.
Sommers gives us an example. He has gone to a vendor with an issue and has been told (inaccurately) that it has never happened before. “Then, one finds out the problem is ongoing, and they do not have a solution,” he says. “Why not state that they are working on it, give a timeline to resolve it, and ask for help if available?”
We have all been in a situation like the one Sommers describes. Such experience reinforces for us the importance of remaining calm and transmitting accurate information as two essential elements in overcoming a business disruption.
Learn from others. That’s another bit of advice Sommers gives. “I have belonged to a business owners’ group that meets once a month to discuss business problems and possible solutions,” says Sommers. He recommends such alliances to others. “That is worth any fee involved, especially when it curtails a major mistake from taking place.”
Many in our industry have had direct experience with natural disasters. Still, it’s not just meteorological or geological events that compel businesses to close for a time. Injury lawsuits may also cause a business to endure an unwanted, temporary closure.
Whatever the reason for a closure, recovering and reclaiming customers when the business opens again can be difficult. Tom Svrcek, president of CSC Insurance Options and Joseph D. Walters Insurance in Belle Vernon, PA, points us to the importance of considering insurance that will cover income lost during a shutdown.
Svrcek recommends “Why Business Interruption Insurance is Important” (smallbusinessquote.com/blog/business-interruption-insurance), a succinct text from Smallbusinessquote.com. “This pretty much explains everything,” he says. Calculations for coverage for insurance that covers loss from closure are based on location and type of business.
Being as prepared as possible for an unpredictable disruption is prudent. And the preparation should include some combination of insurance and cash reserves.
“Our best recommendation is to be properly insured and build up a cash reserve,” says Brian Carter, president of Armstrong-Clark Company in Sonora, CA. “In addition to property insurance to replace equipment and consumables, business interruption insurance is key for disasters—fire, flood, etc.—to help pay the bills and salaries while you are down and recovering.
“The cash reserve is an additional help in a disaster as insurance claims take time to pay,” continues Carter. “It also provides a buffer for other cash flow challenges when a business struggles due to weather or other unforeseen forces.”
Carter firmly advocates a proactive approach. “We feel you need to hope for the best and plan for the worst,” he explains. “Come up with a plan and implement it immediately.”
Temporary disruption from a natural disaster is a disturbance with which Carter’s company has had to deal. “We had a massive fire, known as the Rim Fire, outside Yosemite National Park,” he explains. “There was a point where we needed to make a decision, and we started loading trucks to move inventory down the hill to a safer location. Thankfully the fire was contained just before it reached our manufacturing plant.”
Vendor issues have also caused disruptions for Carter’s company. “Years ago, we occasionally ran out of mildewcide and a couple of other key ingredients due to supply chain challenges,” he says. “To rectify the problem, we rented some extra space in a local business to store the extra material, and no one was allowed to pull from this emergency inventory without the president’s consent.”
Developing solutions takes creativity. For instance, it is important for Carter’s company and its stain can supplier to be in sync. One year the demand and supply got out of phase, meaning more stain cans were needed than were immediately available.
“This almost put us out of business because cans take 90-plus days to manufacture and deliver,” says Carter. “The can supplier rushed to create paper labels and hand-applied them to generic cans until our inventory was received.”
Seeking to prevent a future can shortage led to a novel solution. “We rented an additional 5000-square-foot of space just to store cans to complement the warehouse storage our supplier manages,” says Carter. “This helps buffer spikes in demand and protect against any glitches in our can supply chain.”
Calm. Candor. Creativity. All play a role in overcoming disruptions.
Which sort of disruption is most likely to affect a business? The DHS primer cited in the first section guides us to answers. It includes direct links to assessments of hazards (e.g., floods, hurricanes, landslides, volcanoes) by locality. It also provides links to analytic tools for assessing human-caused hazards, such as workplace violence and terror threats. And there are links to tools for assessing technological hazards.
DHS recommends companies do a business impact analysis (BIA) to predict consequences of a disruption and then work to develop recovery procedures. (See the BIA document via www.ready.gov/business-impact-analysis .)
In its list of impacts to be considered in a BIA, the DHS soft peddles nothing. A disruption of business functions and processes
can lead to lost or delayed sales (and income), increased expenses, customer dissatisfaction and defection, contractual penalties, and much more. Even regulatory fines are on the impact list. (Yes, it’s possible a disruption, such as a fire, could reveal a hazard that should have been removed, and a disruption will then be compounded by a regulatory violation.)
BIA is really about “what if” scenarios. What happens if there is physical damage or restricted access to a building? What if equipment is damaged? A utility outage? Damage to data storage and retrieval or transmission systems? Supply chain breach? Absence of a key employee?
Look at the broad scenarios, which might result from any number of different events, and establish protocols for recovering from them. An easy one is off-site (cloud) backup for all business-related data—from inventory and financial to customer base and marketing.
Safe workplace practices, good communication and training, routine maintenance of equipment, and data backup (designed for fast, easy retrieval) prevent or mitigate the most common disruptions. For rare and large disruptive events, such as hurricanes and earthquakes, flex-ibility typically becomes the most valued asset in recovery.
And flexibility derives from calm, candor, communication, and creativity.