You know you need insurance to protect your business and recover your
real estate, material and equipment investments in case a large loss occurs. But
have you safeguarded your business against
all of the other costs that come in the wake of
an unexpected interruption in operations? If
you haven’t, your enterprise could struggle to
bounce back after a major unexpected event.
“There are numerous ways that a business
can be affected financially from a significant
loss, whether it is from a fire, wind or flood,”
says Tom Russell, senior risk control representative at Westfield Insurance. “Normally
the original cause of a loss is an insurable
event. The major problem for a business continuing operation after a significant loss is the
hidden costs associated with a loss.”
Smart Business learned from Tom Russell
about how to develop a business continuity
plan to minimize indirect costs and quickly
How can a business continuity plan diminish
A proactive business owner will have a
business contingency plan in place to alleviate hidden costs such as expenses and loss of
income from losing key employees and valuable customers. This plan will provide a
means of producing or distributing a company’s product through the use of alternate
inside or outside resources to minimize
short-term and long-term disruption. A well-developed and executed contingency strategy will help a
company to maintain its customer base, retain key employees and continue a cash flow for the business.
How should a company develop this prevention plan?
The management of a company needs to
assess business operations, identify potential
loss exposures and develop a contingency
plan to mitigate the adverse effect of these
loss exposures to the business. This entails
identifying and evaluating critical operations
and formulating contingency plans using
internal and external resources. Once managers identify key outside resources, they
need to develop them so that they can be easily accessed when the large loss occurs.
What are the different types of plans?
There are basically four types of emergency
plans: action guides, response guides, emergency management plans and mutual aid
Action guides are normally in a checklist
format. These guides provide detailed procedures to follow in the event of a large loss,
including information on internal and external resources and how to access them.
Response guides describe the equipment
and facilities that will be required during an
emergency situation. Response type plans
only provide information on the actions that
must be implemented to limit damage from
Emergency management plans are comprehensive programs that include prevention, preparedness, response and recovery
that should take place before and after a
large loss. This plan will include response
plans for each area of potential loss that the
Mutual aid plans are developed through
the participation of companies that agree to
share resources in the event of an emergency
Can you give an example?
A cold storage facility could arrange for a
company to provide portable generators to
its facility in the event of an extended power
outage. This contingency strategy could prevent a company from having a food spoilage
loss. This cold storage company could also
arrange with another cold storage facility to
distribute product to its customers until it is
able to make its own deliveries.
The contingency plan should also include
the safeguard of vital records that will keep
the company operating and generating
income. These records would include:
- Financial — account receivables
- Production — research, engineering,
- Sales — customer records, inventory
- Personnel and general administrative —
employee records, legal and tax records
How should these plans be implemented and
Regardless of which contingency plan is
developed by the company, it should have the
full support of management in both the planning and implementation stages. The contingency procedures should be reviewed on a
periodic basis. This review will verify that the
plan is current and up to date for the company’s present organization and operation.
Also, the contingency plan should include
provisions for sufficient funding and
resources so it can be properly implemented
when an unexpected situation arises.
Hopefully, through a well-developed prevention plan, the response and recovery planning sections of the contingency plan will not
have to be implemented or tested. As previously mentioned, a comprehensive, well-managed prevention program will reduce
expenses and disruptions to the continuation
of any business.
TOM RUSSELL is a senior risk control representative at the Cincinnati service office of Westfield Insurance. Reach him at (513)
985–9080 x218 or [email protected]. Westfield Insurance provides commercial and personal insurance services to customers in 17 states. Represented by leading independent insurance agencies, the product we offer is peace of mind and our promise of
protection is supported by a commitment to service excellence. For more information, visit www.westfieldinsurance.com.