Business Continuity – Despite Disaster

by | June 30, 2011

When business owners hear the term “business continuity,” they most readily think of what to do in the case of a physical loss such as a fire, flood or earthquake.  These physical losses are important risks to protect against but “business continuity” planning goes beyond that.  Business continuity planning must also address the impact of losing a key person in the business or the potential risk associated with reliance on key vendors.

PHYSICAL LOSSES: Generally, physical assets are protected using insurance.   In the case of a theft, fire, flood or other loss, the insurance company covers the costs (minus the deductible) for any losses including replacement, litigation, or other expenses incurred.  That being said, other key practice issues arise that insurance does not address.  The company must maintain backups and key procedures to help it get back up and running in the case of a loss.  An example would be the theft or loss of a laptop computer.  Insurance will pay the cost of replacing the laptop itself and may also cover the cost of obtaining new template documents or other key tools.  The insurance may assist with issues of breach of confidentiality due to the files being lost.  The insurance, though, probably would not be sufficient to recreate the lost client files.  The attorney needs to have a system, such as a backup process, to protect the firm from losing this data permanently.

PEOPLE LOSSES: The people of a company are often its most essential assets.  People losses can occur due to planned events such as retirement or unplanned events such as death, disability, voluntary termination, or involuntary termination.  It’s also important to think of these scenarios for both owners and employees of the company as a people loss in a small business can have a dramatic and chaotic effect on the company’s operations and its clients.  Without proper planning, these scenarios could result in unanticipated consequences and create chaos within the company and with the company’s clients.   As the leader of your company, you must consider ownership, management and client transition issues and put a plan in place that minimizes disruption for all the stakeholders involved.

In small companies, employees serve a critical role in keeping operations moving. If one of those employees fails to show up to work one day, how will the company operate?  The impact on the owners and employees of the business is significant and will dramatically impact operations and revenues.  The company’s best planning is to have a procedures manual and a plan for who would fill the role of the departing employee.  The company may have other employees take over certain activities.  Other activities may require a contractor or administrator to come in on an interim basis to fill those roles.  Recognizing this vulnerability and planning for the worst will help the business continue to operate in the case of a people loss.

THIRD PARTY LOSSES: Another risk area for business is if a key vendor fails to perform.  For example, many small companies contract with IT services that are “cloud” based or hosted elsewhere.  If that vendor closes its doors or has a major catastrophe in its facility (i.e. fire, flood, earthquake), the company is at risk. Similarly, if a company is reliant on a particular supplier or customer, the business is at risk of any failure by the other company.  When working with vendors that are critical to the company’s operations, the business must understand what vulnerabilities exist and how they can be mitigated.  We all know that even a short-term internet or phone outage severely limits our ability to do business effectively.  Imagine if the outage existed for weeks or resulted in a permanent loss of information.

Planning for events beyond the fire and flood is critical to business continuity.  By considering the risks to the business in the areas of physical, people and third party dependencies, a business can create plans to successfully work through these unexpected events.