Over the past few years, business leaders have been reminded repeatedly of the unpredictability of doing business in an uncertain future. This has certainly been the case for the past two years as business owners faced devastation from both humanitarian and natural disasters.
As the world gets riskier, being prepared for disruptions and disasters impacting your business is extremely important. Why? In addition to preventing severe financial losses, it can prevent companies from “closing their doors”.
To celebrate April’s Financial Literacy Month, I will share examples of what happens when you do not have a plan and outline strategic steps on how to build a resilient organization during the next crisis.
NOT PLANNING FOR THE UNEXPECTED
Even seemingly small events can have major impacts on a business. Consider the following events causing major impacts to businesses:
- A car hit a fire hydrant in front of an antique bookstore causing damage to 1,500 antique books costing $300,000 in restoration and repairs.
- A bad database upgrade and upload resulted in the database transaction processing idled for seven days; resulting in the loss of two major clients.
- Even a trader was impacted by a power loss at his home. Due to the outage, he was unable to execute a trade to exit a position and lost $70,000.00 in a single day.
Let’s look at what happened with Tessco Technologies, a supplier of wireless communications products for network infrastructure, site support, and fixed and mobile broadband located in Baltimore, Maryland. The business was not in a flood, fire, or earthquake zone. In this case, the culprit was a faulty fire hydrant, which caused several hundred thousand gallons of water to be blasted through a concrete wall leaving the company’s primary data center under several feet of water. It also left 1400 hard drives, and 400 SAN disks soaking wet and caked with mud and debris.
PREPARE, PREVENT, PROFIT
Businesses don’t need to be located in a disaster zone to be impacted by a disaster. The key to protecting your business is to prepare with a plan that is well documented and has strategies you can rapidly put into place.
Below are five reasons why business leaders should prepare:
- Quickly respond and adjust to a disaster or disruption with strategies that allow you to shift and pivot your business for a more expedient recovery
- Reduce or even eliminate financial losses by implementing strategies that reduce the impacts
- Obtain better insurance rates and coverage for instant Return on Investment (RIO)
- Meet government, regulatory, and customer requirements calling for contingencies
- Maintain business reputation and share price
A well-documented plan can help you quickly respond, adjust, and pivot to alternative strategies. As part of proper planning, it is important to know what the delayed and lost revenue to your business will be as well as the potential for increased expenses and other recovery-based costs that will impact your business.
The first step is to calculate what your downtime costs would be. This is usually directly representative of lost revenue. It is important to note that even delayed revenue can have a significant impact on a business’ cash flow, whether daily, weekly, or monthly. Even if all your income is only delayed, having a reduction to cash flow can shut a business down quickly.
By taking the time to do even basic downtime calculations you can begin to take steps to protect your revenue-generating processes.
ASSESSING THE FINANCIAL IMPACTS OF BUSINESS DISRUPTIONS
Many organizations skip the Financial Impact Analysis. This is a mistake. Conducting a Financial Impact Analysis is critical to helping a business understand the actual financial impact a disaster or disruption can have on a business. With this process, businesses can select strategies to enable a recovery that makes sense financially and gives leaders peace of mind that no matter what uncertainties the future may bring, organizations will thrive and even profit for years to come. Let’s take a look at the top five:
- Providing insight into Business processes and Applications that when impacted by disruption will cause the business to have lost or delayed revenues
This first step will allow a business to determine estimated or in some cases exact dollar amounts in lost and delayed revenue from a disruption. Even a basic calculation of these lost revenues can quickly inform a business where they can and should focus their preparedness efforts. Notice this is preparedness, not recovery efforts. This is because a large part of getting this right is done during the preparedness phase pre-disaster.
- Allows for proper cost-benefit-analysis of (to implement) right-sized recovery strategies
This calculation then allows the business to focus its strategies on key critical core functions that are most likely to be impacted by revenue losses and cash flow issues. This deeper insight helps the business to focus resources, time, and money on these critical functions with better data backup, record retention, and manual recovery strategies rather than through resources in business areas randomly that may not need as much or any strategies.
- Potentially reduced insurance premiums along with increased insurance coverage
Additionally, presenting your insurance company with a well-thought-out preparedness plan in many cases can reduce your insurance coverage premiums, provide you with increased coverage, or both. Just recently I helped a large Biotechnology company obtain an additional $500M in coverage for a total of $2B in total Property and Casualty Insurance Coverage with zero additional increase to their premiums.
- Better insight for the selection of Recovery Time Objectives (RTOs), Recovery Point Objectives (RPOs), and Maximum Allowable Downtime (MAD)
Another key benefit is rather than selecting arbitrary Recovery Time Objectives (RTOs) for your business processes or Information Technology Disaster Recovery (ITDR), you can tie these to your financial impacts and set clear goals that are meaningful to your business.
This would allow you to implement a preparedness or IT recovery strategy that enables you to recover in the time you need and more importantly, save money.
- Greater ability to measure effective Return on Investment (ROI) of Business Preparedness Measures
When you take the time to do even basic financial impact calculations, it also becomes much easier to measure and obtain better ROI. Yet, many do not take the time to do these calculations because they believe it is too difficult, they don’t know where to start, or even how to apply the outcome of these calculations.
MAKE YOUR BUSINESS MORE RESILIENT
At the Erwood Group, our business is helping your business stay up and running after and ideally during a crisis or disruption. Whether you need help with business continuity planning, crisis, and incident management, or need better disaster recovery options, we’ve got programs and services to make your business more resilient so that you can prepare, prevent and profit even in a disaster.
To celebrate April’s Financial Literacy Awareness month, I am offering a free consultation to help your business survive the next disaster and provide critical strategic steps to prepare, prevent and profit in an uncertain and unpredictable future.
Contact Keith Erwood, Business Preparedness Expert, ERWOOD GROUP.