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The Show Must Go On Part 2: Continuity of the Business During and After a Disruption

30/03/2016


Imagine your office building, shop or warehouse caught on fire or flooded….do you have plans in place to ensure your operations can continue while you are dealing with putting out the flames, cleaning up the water ensuring your staff are safe and starting to think about how you will re-build? Do you have customers depending on you for goods and services? If so, how will you service them? Do your key staff understand their roles and key responsibilities in getting the company back up and running following a major disruption?

In part one of this blog, we highlighted the ownership and business implications in the event of a disruption and the importance of an emergency response plan to guide a company’s response. In part two (below), we outline key elements in ensuring continuity of operations during a disruption that should be incorporated into your plan.

The first step in developing a plan for the continuity of your operations, is to identify the critical aspects and processes underpinning your business. What are the critical goods and services your business provides which your customers are depending upon? What are the inputs or processes that are key to its ongoing operations and success? Which business processes and functions are the most time-critical? What are the interdependencies with respect to your critical inputs and processes? In a perfect world, your continuity plan would ensure your entire operations could continue during the disruption, although typically, that is not possible given the potentially broad impact of the disruption and the high cost associated with quickly restoring operations. Therefore, you will need to prioritize which critical inputs and processes your continuity plan should address. Firstly, you need to understand “what critical aspects of my business will have the biggest impact if they were unavailable?” Depending on your business, these might include inventories, invoices, heavy equipment, distribution processes or even software and other systems.

Once you have identified your critical inputs, processes and interdependencies, you will need to determine how long your business could function without them to deliver your goods and services. What is the maximum allowable downtime that your business can sustain with limited impact to the delivery of goods and services? If your business operates a just in time inventory system, the maximum allowable downtime for that process will be minimal to limit the disruption to your business. On the flip side, if you have sufficient cash on hand or access to a line of credit, the accounts receivable collections could have a much longer allowable downtime.

Having determined the maximum allowable downtime for your critical inputs or processes, you are able to prioritize the sequence with which they should be restored in what priority and therefore design recovery plans accordingly. These recovery plans detail the ways and means you will ensure critical inputs or processes are delivered at minimum service levels within the acceptable allowable downtimes you determined earlier. For example, should the disruption occur close to “pay day”, the maximum allowable downtime to pay employees is short; therefore, your recovery plan may use a third party payroll company to process payments to employees during the disruption or you may simply pay employees that same as the previous pay cycle and reconcile afterward. There are steps that you can take now to be prepared, such as setting up a contract with a third party payroll provider and sending them the relevant employee information required. Alternatively, it could be as simple as storing an extra cheque book in your safety deposit box and having access to a payroll master file (which is regularly updated) to write a manual cheque to your employees.

Equally important as having a plan in place, is also communicating the plan to key employees or stakeholders who have a role in its execution. It is important to communicate your detailed recovery plan with your key staff to ensure they are comfortable with and understand their responsibilities.

Finally, the authority for who will communicate on behalf of the company should be clearly established in advance so everyone within your organization knows who will be responsible for responding to customers, employees and media during and following a disruption.

In addition to being prepared to respond to a disruption, what can you do to further mitigate the identified impacts to your business? Your plan should incorporate risk mitigation strategies, such as:

  • Insurance - Insurance policies can be purchased to mitigate your risk of property damage and business interruption. Insurance comes at a cost; therefore, it is important to obtain the right level of coverage to mitigate your risk exposure.
  • Alternative facility – To continue operations, your business will need a place to operate if your existing location is not available. Depending on your business, it could be as simple as employees working from home or it could be finding another facility equipped to handle the manufacturing of your goods. Within your business continuity plan, you will need to determine how quickly the alternative facility will need to be available and setup up with the appropriate equipment and supplies.
  • Dependencies – Although it may not be apparent at first glance, assessing dependencies within your critical continuity plan, both internally and externally, is also important. Think of it as a domino effect – If my staff work from home, do they need computers and how will they access the business information on the server? What is my IT disaster recovery plan and do I have offsite redundancy in information and systems? If you lose power, do you have a backup generator to allow operations to continue?

An effective plan will establish a recovery and response team that would know the emergency and continuity response plans and will be able to lead the business through recovery. It is especially beneficial to have these key people included in the development and / or review of those plans. Furthermore, the plans should be summarized in a checklist format for easy referencing during the disruption.

Once you have laid out the plans detailing how you will recover from the disruption and mitigate your risks, practice makes perfect! Train your staff to know the important aspects of the emergency response and recovery plans and their role. Now it is time to put your hard work to the test, simulate a disaster to confirm that your business is prepared. Take the time to debrief and identify gaps in the plan and implement changes. At a minimum, the plan should be reviewed and tested annually.

Your ability to respond to a disruption can be a competitive differentiator and will either build or damage your brand. Ensuring you have plans in place to respond to an emergency as well as resume operations will minimize the impact to your customers and ultimately protect the strong reputation you’ve worked so hard to establish.

To learn more about how MNP can help you design an emergency response plan using ‘tried and tested’ tools, contact Mariesa Carbone, CPA, CA, ABCP, CRMA, Business Advisor, Enterprise Risk Services, at 780.453.5377 or [email protected] or Lynne Fisher, Senior Manager, ExitSMART at 780.401.7085 or [email protected], or your local MNP Business Advisor.