Engineering Inc. - September/October 2007 - 34

RIsk maNaGEmENt Taking a Close look aT Business DisasTer reCovery Planning By Gary S. Lynch and Al Peterfeso For years, organizations have been developing basic business continuity and disaster recovery plans. But do these plans really help organizations recover, restore and resume their critical operations in the event of a major disruption? Or, are these plans only effective in satisfying an audit or compliance requirement? Was the planning process the most effective and efficient way to deploy resources and capital against a mounting challenge? More than 40 percent of businesses that experience a disaster never recover. Additionally, 80 percent of companies that have an extended disaster are out of business within five years. Still, only 35 percent of small businesses carry business interrupGary S. Lynch tion insurance. Natural hazards, terrorism, data security breaches, biological threats, political instability and potential damage to reputation can have widespread effects on a company and its stakeholders (i.e., investors, insurers, suppliers, distributors and customers), regardless of where problems occur. For many of these material exposures, there are no insurance policies or other traditional risktransfer mechanisms. In most instances, insurance can provide only part of the solution. Companies have limited financial resources, time, people and management attention to dedicate to these risks and their impacts. As such, companies should review their business continuity programs to ensure: Al Peterfeso n They can cope with the effects of a wider range of risks, no matter the origin of the disruption; n They can continue to focus on what is most critical to business operations; and n They allocate appropriate resources to ensure business continuity programs succeed. Since many business continuity risks often are outside of a company’s direct control and are largely uninsurable, risks must be mitigated in other ways. Risk mitigation generally has focused on point-in-time management of individual threats (i.e., fires, explosions, hurricanes, terrorism, etc.) as opposed to the effect of a single disruption on the business. The 2004 and 2005 hurricane seasons—particularly Hurricane 34 ENGINEERING INC. sEptEmbER / oCtobER 2007 Katrina—demonstrated the need for organizations to change their assumptions and scope, revisit their business continuity planning and adapt many of the principles outlined above. The effects of Katrina were far-reaching and spread well beyond the immediate strike zone. They tested the resiliency of many organizations. H. Kenneth White, an ACEC Business Insurance Trustee and president of H. Kenneth White and Associates, Inc., in Montgomery, Ala., aided many ACEC member firms in Alabama. Says White: “Firms having both good business insurance coverage and a definite plan for sustainability weathered the storm well. Access to good business insurance coverage in particular was a critical factor in the business life-or-death struggle of so many engineering firms.” The ACEC Business Insurance Trust offers broad package policies written specifically for member firms. The policies make available recommended coverage for direct damage to the premises; business interruption extensions (loss of off-premise communication, electric, gas and water services); physical damage to vehicles; and workers’ compensation for employees. When considering coverage, policies should include: n Replacement cost—for real and personal property assets; n Business interruption insurance—for ongoing expenses, lost profits and, especially important in a disaster, coverage for extra expenses brought about by the insured disaster; and n Loss of rents—for firms with tenants. Doing so can help to highlight the upside of risk, which can put your organization at a competitive advantage in the local, regional and global economy, as well as provide confidence to take business risks and move quickly in the face of changing market demands. n Gary S. Lynch is a managing director at Marsh Risk Consulting and leader of the Risk Intelligence Strategies and Resiliency Solutions Practice in New York City. Al Peterfeso is program manager for the ACEC Business & Professional Liability Insurance Program in St. Louis.

Engineering Inc. - September/October 2007

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