What’s the point if you don’t have a business contingency plan?
In our previous article we highlighted that during many disaster events the Emergency Response (ER) is excellent and saves many lives. The Business Contingency Plan (Plan B) period follows with assistance provided to individuals in need. There is a problem during the Recovery period in that there is a serious lack of focus on restoring business operations and companies. This article explores this problem further.
In 2011 in Thailand during the Great Flood, the ER had been well managed and fewer than 600 people dead and very few injuries was a good result.
This left the business operators and their 14000 factories to address. The government and aid groups did little for the companies. Fewer than half of the factories had insurance, and many that did, had insufficient flood coverage. Due to the volume of factories affected, Insurance companies struggled to cope with the number of claims, resulting in significant payout delays.
Insurance coverage for natural disasters normally covers physical damage only, and so only factories that had been directly affected were paid and this was slow and only to companies with sufficient flood cover. Companies that went to the effort to protect themselves received no payments. Customers of affected factories (often in other countries) were not damaged, but still lost money through supply interruptions, received no payments. Some customers were forced to source alternative suppliers at their own cost and received no payments. In many cases, a damaged factory, once restored found they have lost their customers forever. No payments were received.
In other disasters, a business may lose a number of key staff either as a direct result of the event, or by some relocation need after the event. If these people cannot be replaced a business may no longer be able to operate and meet the demands of customers. Insurances do not normally cover such events.
We find that after many events in many countries business operators are not fully insured and are forced to close down. They are unable to obtain critical supplies, unable to secure human resources or without customers to sell to. Governments and Aid Agencies have done nothing for these operators. Why do we care about this?
Whenever this situation occurs, we have seen the following outcomes:
- Qualified and Physically fit individuals (and often their families) leaving the affected areas to find work, and very often not returning ever, or only after many years.
- Lower levels of income within the affected areas and communities as less salaries (and profits) are made, leading to lower spending on all goods and services in the area. This in turn leads to a downward cycle of unemployment, spending and decreased earnings.
- An inability for local companies to provide services and products for the recovery efforts, and an increased use of external entities.
- A reliance on government and aid agency hand-outs for a longer period than should have been the case. This is exacerbated by “aid fatigue” as focus in removed by the media.
- An increase in poverty for local affected regions, which in turn leads to parents being unable to afford the costs of schooling, which creates an inter-generational effect of disasters.
There are solutions to this problem:
- Governments and Aid Agencies should also contribute to the recovery efforts of business operators, with a focus on ensuring restoration as quickly as possible. Recovery periods and costs would dramatically reduce, with ongoing benefits for many years after a disaster event. This may be provided as direct financial assistance, or may occur through funding of corporate crisis management assistance, targeted purchasing from local business operators immediately following disaster events and in many other ways.
- Increased emphasis should be placed on risk minimization and crisis management preparations by companies that operate in disaster risks zones (and indeed all companies) particularly where a small number of employers form the financial core of a community. This should be forced by governments, insurance companies, customers and lenders, with expert assistance provided by corporate crisis management experts.
- Aid Agencies and Governments can target recovery and renewal industrial activities following disaster events through assistance or incentive schemes targeting specific activities from within and from the surrounding zone of the affected areas. There is opportunity for “jump starting” whole new industries, employment opportunities, technologies and communities if such planning is undertaken and supported in the initial stages. Examples may include rapid creation of 3G mobile telephony networks where previously a legacy land line network existed, or the initiation of new solar power generation in the case that electricity grid networks are damaged significantly, or the funded creation of an aquaculture business where fishing boats and infrastructure have been demolished.
Today, despite significant evidence, there is a clear lack of understanding of the need for business operations to recommence within disaster affected areas asap. It is not considered to be the role of Governments or Aid Agencies. This is a mistake. Re-establishment of businesses and the ensuing benefits to local communities that supports the most rapid and sustainable recoveries, and therefore lower the overall costs to all parties, should be within the active scope of both Governments and Aid Agencies.