Failing to prepare a business continuity plan gives competitors an advantage, and it could spell the difference between a temporary interruption in business and a permanent closure. As many on the U.S. East Coast realized the hard way in the wake of last October's "Superstorm Sandy," no one controls natural disasters, but a business can take meaningful steps to prevent a natural disaster from becoming a business catastrophe.
After a disaster many businesses stop operating, at least temporarily. Some of those businesses never resume operations because they are overwhelmed and cannot recover. Commercial and property insurer CNA Financial Corp. has reported that one-third of businesses fail within the first year after a disaster and another third fail during the next five years. Companies with a business continuity plan are able to resume operations more quickly and efficiently than those without one because having a plan significantly improves their ability to cope with the disaster and to survive.
EQECAT Inc., an insurance consulting firm, has estimated that Superstorm Sandy caused upwards of $50 billion in economic losses, including property damage and lost business. In addition, the Insurance Information Institute has estimated that more than 1.3 million Sandy-related claims have been filed with insurance companies.
These are sobering statistics, and with the 2013 hurricane season right around the corner, business owners should make sure that their business continuity plan has business interruption insurance that provides some coverage for disasters, including property damage and lost profits. Although insurance coverage is an element of a business continuity plan, it alone is not enough. For a business, it is not the end of the exercise; rather, it is just the beginning.
The impact that a disaster has on business operations can be substantial, resulting in lost profits, lost customers, increased costs and missed opportunities. In some cases, these losses may exceed those caused by physical damage to property and equipment. If a company cannot service customers, those customers will simply go elsewhere--and unfortunately, likely to the company's competitors. Stated differently, failing to implement a business continuity plan is the same as providing a gift to competitors.
Planning for unexpected events and business interruptions can be challenging, especially for small and medium-sized businesses (SMBs) whose resources may be limited. Business continuity planning may be low on the list of priorities for such companies since the likelihood of a catastrophic business disruption...