How to plan for potential business interruptions

Companies get interrupted by the unexpected — fire, machinery breakdown, street closure or supply chain issues. It happens. And like many things in business, planning is everything. More than 70 percent of companies that don’t have a comprehensive business continuity plan fail to recover from a significant business interruption event.

“The goal of a business continuity program is to minimize, if not avoid, the impact from any given business interruption event,” says Dereck Malzi, area assistant vice president at Arthur J. Gallagher & Co. “At a high level, it prioritizes the recovery of business processes and establishes an incident management structure designed to lead an organization through a crisis.”

Smart Business spoke with Malzi about how to set up a business continuity program before disaster strikes.

What steps should employers take now to prepare for business interruption?

A proper business continuity plan covers planning and preparation, response, recovery, and continual review and revision.

Start with a business impact analysis (BIA) and risk assessment to determine post-event recovery strategies and priorities before an event occurs. The BIA helps determine ‘what is at risk,’ the adverse impact of critical business functions if they’re interrupted and the ideal post-event recovery sequence. A risk assessment identifies the type of risks that have the potential to impact the company’s operations.

When a crisis strikes, time is of the essence. But typically, these events aren’t addressed in the policies and procedures. Developing emergency policies and procedures beforehand can save valuable time.

Timely and accurate communication is essential. The inability to communicate can result in unnecessary loss of life, business and customers. Having a process to handle the heavy volume of information gives companies the ability to make timely and accurate decisions. Poor communication and sharing of information is the No. 1 reason companies fail to fully recover from significant business interruption events.

Other important factors are:

  • Plan testing: Exercising or testing helps train staff and evaluate the completeness of written plans.
  • Education/awareness: No plan will be effective unless all employees and key external parties understand what is expected of them. An educational or awareness campaign helps ensure the successful execution of company plans.
  • Continual review and revision: It is extremely important that business recovery plans and strategies are revised on a continual and regular basis. Without this constant review and revision, plans can quickly become out of date.

How can a table top exercise help? How often does it need to be revisited, reviewed and practiced?

A table top exercise can facilitate discussion and preparation for any scenario, such as closed roadways, key personnel who are absent and power outages. This exercise helps review roles and responsibilities, and the participants can identify which functions are impacted and how to meet recovery time objectives for each. It helps them prioritize what to recover first and includes things like vendors, phone service, IT and data backup.

Once you’ve completed the exercise, make sure all gaps, new ideas and recommendations for improvement are identified, recorded and assigned to personnel for follow-up. Next steps can be to build on what was learned by making changes and clarifications to your written plan. Consider developing focused exercises for key business processes. Also, complete formal post-mortems on any event that impacts or has the potential to impact business operations and employees. Always keep learning to improve your plan.

What kinds of insurance are available to manage business interruption risk?

There is no cookie-cutter policy that will work for everyone. Business interruption insurance is designed to cover loss of income that a business suffers after a disaster. This can be paired with self-insured tools such as an 831b captive, depending on your appetite for risk. Your agent can help you put together the right program for your organization.

Insights Insurance/Risk Management is brought to you by Arthur J. Gallagher & Co.