What would be the impact on your business if you were suddenly unable
to operate due to an unforeseen incident, whether it be flooding, fire,
malicious damage, a terrorist incident or even just a power cut? Would
your staff know what was expected of them? How long could your business
survive without its premises or critical IT systems?
Contrary to the ’it will never happen to me‘ school of thought, these
scenarios are far from unusual and talk of the potentially dire
consequences for small companies is much more than just scaremongering.
According to a survey by the Department for
Business, Enterprise and Regulatory Reform (formerly the Department of
Trade and Industry), seven out of 10 small firms would go out of
business within a year if they experienced a major disaster. Findings
from the same survey also suggested that if computer systems were
unavailable for 10 days or more, 50% of businesses would cease trading
immediately with 93% going bankrupt within 12 months.
The variety of threats that could potentially affect businesses is so
vast that it makes planning specifically for each individual event
almost impossible. What is critical, however, is a proper business
continuity plan that enables you to prepare in advance ways in which
you can keep your core business functions operational in any
eventuality.
While awareness of the need to do this
has improved over recent years – largely thanks to high profile
incidents such as the Buncefield fuel depot fire in late 2005 and the
severe flooding that affected parts of England earlier this year – the
key to the effectiveness of such plans is a thorough and regular
programme of testing. “Without proper training and testing, weak and
unworkable plans can affect a business as seriously as having no plan
at all, so reviewing the main steps is vital,” says Russell Price,
chairman of the Business Continuity Forum. “A key area to focus on is
communication with the workforce, as only a third of small firms do
this effectively.”
Learning lessons
The flooding in mid-2007 in particular hit homes and businesses hard
with its sudden and devastating impact. “We saw one firm that had
located all their servers in the basement when they moved premises. Had
they been located on the ground floor, they would not have been damaged
and their business would have been relatively unaffected,” says David
Townsend, a major loss specialist within the corporate and major
incident team at Crawford & Co.
“For the
future, businesses should think about flood-resilient repairs or
construction to reduce reinstatement times and also think about how
they use their premises,” he adds. “Business continuity plans should be
revisited to see how well they operated and appropriate changes made
where there were failings. Those not affected by these most recent
floods should also examine their plans to see whether there is an
over-reliance on local services and alternative premises that may not
be available because they have also suffered damage.”
But risk assessment should not just consider loss of infrastructure.
Almost all of a company‘s critical functions could potentially be at
risk, and that includes one of its most vital assets: its staff.
“Different situations present differing threats to small companies and
their business continuity plans,” claims the Business Continuity
Institute‘s Price.
“With 64% of bosses admitting
they have no plans, an influenza pandemic is one of the most commonly
overlooked threats, but it doesn‘t stop there. Our research has also
found that preparation among small businesses for natural disasters,
chemical hazards and bomb threats must also be addressed,” he adds. “By
failing to invest in sensible measures to protect the firm, many
companies are leaving themselves exposed to potentially serious
difficulties which would directly impact on their ability to operate
effectively.”
Safety net
But
even the most diligent approach to managing risk and maintaining a
clear and comprehensive business continuity plan cannot remove the
threat of business interruption altogether. That‘s why a truly holistic
approach to protecting your business must include a good balance of
these measures combined with appropriate insurance cover.
Business insurance can help keep a company running smoothly even when
the unexpected happens, and there are also many steps that business
owners can take to minimise the risks of claims that could result in
business downtime.
For example, while the risk of
theft or damage to stock on the premises might be considered, owners
should also think about insuring their business against damage to stock
during transit. The loss or damage to stock as a result of an accident
or theft during transit can result in potentially significant losses of
income due to supply not meeting demand. This is a particularly
poignant risk for businesses trading in specialist stock when it can be
difficult to rearrange deliveries.
Business owners would also be well advised to protect themselves against the risk of legal action. “On the liability side, we mainly see slips and trips on premises,” says Neil Fraser*, claims market services manager at Zurich Insurance Company. “In the case of shops or businesses being situated on the highway, there is frequently a dispute over ownership of the frontage between the customer and the local council and it is important to ensure there is clarity before an accident occurs. Spillages in shops and restaurants are also common and it is important to have written procedures for dealing with spillage and accidents to help repudiate claims.”
There are
many costs associated with the health and safety of employees, and
different types of insurance can work alongside one another to help
reduce costs of work-related injury and illness. Employer‘s liability,
for example, is a compulsory insurance (with the exception of
non-limited companies employing only close family members and limited
companies with one employee who owns at least 50% of the issued share
capital). It will cover legal and compensation costs for employees who
suffer work-related injury or illness, onsite or offsite, but it is
good practice to ensure that all eventualities are covered.
“Claims concerning employees can be especially serious for smaller
businesses,” warns Zurich‘s Fraser. Accidents at work will cost your
business money, even small incidents. In fact, the Health and Safety
Executive found that, on average, the cost of uninsured losses is 10
times the cost of insurance premiums paid for the same period**, and
the smaller the business, the greater the potential impact. Examples of
uninsured costs of work-related injuries and illnesses include lost
time; sick pay; production delays; loss of contracts; investigation
time; and damage to products, plant, buildings, tools and equipment.
Personal protection
While personal accident insurance is not compulsory, it can work in
addition to employer‘s liability to help protect against lost time and
sick pay which, in turn, can help reduce costs of production delays and
potential loss of contracts. When an employee needs to take a period of
time off work as a result of illness or injury, the employer can opt to
receive the money towards the business to fund temporary staff as a way
of keeping the business running.
In addition to
ensuring the appropriate insurance is in place in the event of injury
or illness, business owners should also carry out a thorough risk
assessment. “Many small business owners forget that when they have more
than five employees, they fall under a variety of regulations that
require completion of risk assessments and accident books,” explains
Fraser. “In many cases the customer doesn‘t realise this until we
investigate the claim post-accident.”
A risk assessment should be carried out in order to identify:
- What could cause harm
- Who might be harmed (employees, visitors and public alike)
- Measures needed to prevent potential injuries or illnesses
- Procedures required to implement those measures, complete with logging of measures taken
- Who should carry out checks to ensure actions are still working and how frequently
For owners of small businesses, time is of course limited. However,
involving employees and third parties in identifying risks and
providing solutions could help considerably. Employees involved in
operational activities on a daily basis may be able to come up with
simple solutions so it‘s worth talking to staff on the ground. The
Health and Safety Executive is also an excellent source of regularly
updated advice, while it‘s also worth seeking advice from insurance
firms when arranging cover.
For most small
companies, day-to-day business issues often occupy such a large
proportion of the working day that it doesn‘t always leave a great deal
of time for long-term contingency planning. But business continuity
planning has certainly moved higher up the list of priorities in recent
times.
“Given events such as the recent flooding
and the foot-and-mouth outbreak in Surrey, there is definitely an
increased sense of urgency,” claims the Business Continuity Forum‘s
Price. “However, small businesses are still vulnerable because there is
a palpable sense among bosses that it won‘t happen to them. The facts
are plain: both your workforce and your business are at major risk if
you don‘t look at introducing a business continuity plan. As the old
saying goes, if you fail to prepare then you must prepare to fail.”
*Neil Fraser, Zurich claims market services manager, 13th September 2007
**www.hse.gov.uk: Health and Safety Commission, Reduce Risks – Cut Costs
