|
Executive Summary
The Business Case for Enterprise-wide Contingency
Planning
By Jack Cox
One lasting impact of the Year 2000 non-event was
that it raised awareness of contingency planning across a broad constituency
of society. Most businesses benefited in a number of significant ways:
• Increased awareness of business interruption
issues
• Better understanding of critical
processes, vulnerabilities, and emergency response resources
• Replacement or remediation of outdated
technology
• Improved cooperation and collaboration
between public and private sectors on emergency management issues
• Growth of a common incident command
response model
The challenge is to take what we've learned and apply
it going forward.
Business organizations depend on the continuity of
their business operations to meet customer expectations, financial obligations,
business objectives, and achieve regulatory compliance. Unplanned interruptions
from disasters or crisis events can over time result in serious financial
liquidity problems, increased operating costs, loss of stock value, and
erosion of competitive market share if not promptly remedied. For many
businesses, failing to plan for such contingencies means they will not
likely survive.
• A serious crisis or disaster can irrevocably
impair or destroy the largest company.
• Over 40% of companies hit by a serious
crisis or disaster never resume operations.
• Of those that do, another 30% fail
within two years.
Events or circumstances, which threaten, or have the
potential to threaten, the viability of a business are increasingly recognized
by various interested parties as critical areas of responsibility.
• Investors and shareholders: maintain
and grow the business’s asset value and earnings potential; continuity
of senior management
• Customers: reliable delivery of
safe, high quality, value-added products without interruption and excuses;
ethical behavior
• Employees: a safe workplace; continuing
employment and benefits
• Media: accurate, timely information;
access to key decision-makers
• Regulators and Auditors: compliance
with laws, regulations, and recognized best practices; ethical behavior;
continuing tax revenues
Strategies and processes to manage such threats and
protect company assets are now an integral part of best practice corporate
planning models. Models without such provisions are considered deficient.
They reflect poorly on management and may expose the company and its senior
management team to legal sanctions, financial jeopardy, and adverse publicity.
• People: employees, key managers, business
partners and advocates, the public
• Physical Property: land, real and
personal property, inventory
• Operations: supply and distribution
channels including utilities, key: vendors, contracts
• Information: records, data, media,
systems, telecommunications
• Intellectual Property: proprietary
research, trade secrets, patents, copyrights, unique employee skills/knowledge,
trademarks
• Financial: cash flow, financial
instruments, investments, analyst’s ratings,
credit lines, stock price, adverse forecasts
• Reputation: public image/perception,
market position/share (customers), brand recognition, adverse publicity
or other information
Working under the so-called “prudent man rule”, courts
now hold senior corporate managers responsible for actions they took (or
should have taken) to prepare and respond to operational emergencies.
Legislation such as the U.S. Federal Corrupt Practices Act requires corporations
to treat and protect their
business records as valued corporate assets. As part
of statutory operating license approval and audit processes, regulators
from several government agencies now require companies engaged in “public
interest enterprises” such as banking, insurance and utility services
to produce their business continuity plans and test records. Most telling,
savvy customers are now demanding similar
documents from key vendors as part of their product
and service RFPs; a well-practiced contingency plans can be a critical
marketing advantage over a less well-prepared competitor.
In short, having effective contingency plans is both “good business” and
a positive endorsement of management foresight in exercising its fiduciary
responsibility to the company and its shareholders.
Business survival with your assets and reputation
intact - not immediate restoration of normal business processes - is the
ultimate objective of all contingency planning. Above all, plans need
to support essential business processes critical to preventing significant
long-term deterioration in:
• Delivery of core products and services
• Cash flow and financial condition
• Competitive market position and
image.
Clear response priorities are critical: caring for
people issues first, followed by information and property. If done appropriately
with top management support and guidance from qualified professionals,
any financial and reputation issues are more easily resolved.
Contingency planning in the final analysis is about
common sense and doing the right things.
About the Author
Jack Cox is assistant vice-president and corporate
risk manager for Liberty Mutual Group, an international Fortune 125 insurance
and financial services company. For more information, e-mail: Jack.Cox@LibertyMutual.com
| 
