Business Continuity Plan: Critical for California Businesses
The wildfires that ravaged our state last year were an unfortunate reminder that California businesses must always have a business continuity plan to be prepared for natural disasters. The 2018 wildfire season was the most destructive and deadly in our state’s history, causing more than $3.5 billion in damage all across the state.
Of course, there’s always the threat of a major earthquake that could strike our state at any time and cause untold damage. Most seismologists say it’s not a matter of if, but when, the so-called Big One hits. In addition to natural disasters, your business also faces potential threats from human-caused hazards like terrorism, as well as outbreaks of serious illnesses and technology-related hazards such as power outages, equipment failure and cybercrime.
Preparation Guidance for Earthquakes
Ready.gov is a federal government website that contains resources to help prepare a business continuity plan1 for both natural and human-caused disasters. The website contains detailed disaster preparation guidance for several different types of disasters, including earthquakes.
According to Ready.gov, 40 percent of businesses won’t reopen immediately after an earthquake and 25 percent will be closed a year later. Seventy-five percent of businesses without a disaster preparation and continuity plan will be closed three years after an earthquake. The average daily loss to a mid-sized business that closes due to an earthquake is $23,000, according to Ready.gov.
Preparing for a disaster and creating a business continuity plan consists of several main components, notes Ready.gov. Following are detailed guidelines in each of these areas specifically related to making business preparations for an earthquake.
1. Identify your risk.
You can do this by answering such questions as:
Can your business operate without computers, photocopiers, inventory, customer files or other special equipment? And can it operate without power, water, telecommunications, the Internet or access to your premises?
Can you pay your employees without current business income and can they telecommute if your premises are unusable?
How will you communicate with employees, customers, vendors and suppliers during the post-disaster recovery period?
Have you determined the order in which your critical operations need to be restored?
Can you ship products or provide services to your customers based on the damage your business has sustained from the disaster?
2. Develop a plan.
Your disaster preparation should detail critical preparedness and mitigation actions that should be taken in the following areas:
Staff — Develop a crisis communication and business continuity plan, conduct an employee awareness campaign, develop an employee training program, conduct an employee training session, and conduct an earthquake drill.
Space — Make contingency plans for non-structural items in your premises such as computers, drawers and file cabinets, miscellaneous furniture and fixtures, and compressed gas cylinders and other hazardous materials.
Systems — Make contingency plans for walls and windows, water heaters, suspended light fixtures and T-bar ceilings, stairways, HVAC equipment, piping, and exterior signs and veneer.
Structure — Make contingency plans for unreinforced masonry, concrete construction, soft story construction, concrete tilt-up construction without an anchored roof system, and walls not bolted to the foundation.
Service — Here, you need to determine if your business can still provide service after an earthquake. If so, you might consider becoming a distributor or storage warehouse for disaster relief kits or a volunteer charging station if you still have power.
3. Take action.
Ready.gov suggests the following business earthquake preparation action steps:
Build an emergency supply kit.
Purchase a National Oceanic and Atmospheric Administration (“NOAA”) weather radio or download a mobile alerting app for monitoring of news during and after the earthquake.
Carefully review your earthquake insurance coverage.
California businesses must always be prepared for disasters, whether these are natural disasters like wildfires and earthquakes or human-caused disasters like terrorism, disease outbreaks or technology-related hazards. The time to prepare for disasters is before, not after, they strike. Ready.gov contains resources to help prepare a business continuity plan for both natural and human-caused disasters, including earthquakes. Please contact us if you have more questions about business disaster preparations. An on-demand CFO from a Greater Los Angeles CFO services firm brings both client-side and services-side expertise in preparing disaster recovery plans for local businesses.
1 Business Continuity Plan; Ready.gov
Arthur F. Rothberg, Managing Director, CFO Edge, LLC
The CFO as Your Company’s Risk Manager