A business has property and liability insurance coverage for different types of exposure. Because of the variety of risks, it also needs a business continuity plan in case a disruption occurs that can slow or stop business operations.
The disruption could be simple, like the air conditioner being out for a few days. Another example is a catastrophe occurring that hinders business operations for a longer time. A pandemic, such as COVID-19, could cause a shutdown or change how the business operates.
Even more, the business continuity plan needs to be monitored and regularly updated. It includes processes and procedures to prevent and recover from a business disruption or disaster.
Types of disruptions
An event causing a business disruption can happen suddenly to a business regardless of its location. The timeliness to the response can determine the level of damage, loss, or destruction.
In addition, types of disruptions include
- computer network damage
- death of an owner or key management
- electrical outage
- equipment outage
- fire
- freeze
- hurricane
- pandemic, including COVID-19
- tornado
- water outage
Some disruptions are not as easy to prevent as others.
Disaster Recovery Plan as part of the Business Continuity Plan
The disaster recovery plan (DRP) is a documented process or procedure used to recover and protect a business whenever a disruption or disaster occurs. The objective is to minimize the interruption. The DRP reacts to what happened while the business continuity plan is more proactive.
Business Continuity Plan and what-if scenarios
Using what-if scenarios helps in determining how to respond when a disruption or disaster strikes. The plan needs to be proactive and includes the ongoing input from key personnel.
For instance, going through the what-if scenarios for the different types of disruptions helps determine if there are any “holes” in the plan.
Examples of areas to review in the what-if scenarios include
- alternate facilities
- alternate suppliers
- asset records
- backup generators
- business infrastructure
- employee continuity
- employee safety
- lost business income model
- offsite backup
- preventive measures
- product recall
- risk management
Alternate facilities
The plan includes the location for an alternate facility or facilities.
Alternate suppliers
Similarly, management needs an ongoing process to review alternate suppliers.
Asset records
In addition, the company needs to keep the asset records up to date. Photos, accounting records, and maintenance logs need to be available to support an insurance claim.
Backup generators
Generators powered by natural gas are used as a backup when electricity is out. Uninterruptible power supplies are helpful when there is a brownout or short-term outage of electricity.
Business infrastructure
Certainly, the business infrastructure needs to be protected. It includes facilities, computing, information technology, and other services, including energy and power management.
Employee continuity
Also, if there is a disruption and the business slows or shuts down, it may have to cut back on the workforce. How can a business keep the employees who are trained and valuable to the company? Business interruption insurance may cover this scenario.
One example is the COVID-19 pandemic that has caused businesses to cut back or layoff employees. The federal government provided an economic stimulus package, including the CARES Act. The CARES Act provides the Paycheck Protection Program for employers to cover payroll for eight weeks.
Employee safety
Above all, the next important area is the safety of employees. The business continuity plan needs instructions regarding where the employees should congregate and communicate if an event occurs.
Lost business income model
Even more, businesses should have insurance coverage for loss of business income.
It is important for businesses to forecast what would have been sold if the physical loss had not occurred.
Offsite backup
Businesses need to protect their computers and data. As a result, the offsite storage of computer data should be an ongoing process.Â
Even if the company uses a remote network server, the data and a disk image need to be backed up offsite.
If the facility is damaged or destroyed, how quickly can new workstations be purchased and put in place to continue operations?
Preventive measures
How could the event have been prevented or minimized?
As an example, a generator powered by natural gas helps when there is an electricity outage.
Product recall
Businesses may need product recall procedures and product recall insurance. Employees need to know how to respond to inquiries when there is a potential product recall.
Product recall insurance can be purchased to cover product recall expenses and liability to third parties seeking damages.
Risk management
Even more important is risk management to the business continuity plan.
Risks to the company need to be identified and monitored. Procedures need to be in place to eliminate the risks, if possible.
Risk management also includes having proper property and liability business insurance coverage.
Types of business insurance include
- Property insurance covers damage from fire, theft, and vandalism.
- Business interruption insurance covers the loss of income that a business suffers after a disaster.
- Liability insurance protects against lawsuits for different reasons, including employment, personal injury, professional liability, and property damage.
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