When your business must close or suffers a disruption due to any kind of natural or man-made cause, a good business continuity plan can ensure it can survive until repairs are made and operations return to normal.
If a facility is damaged, production machinery breaks down, a supplier fails to deliver or information technology is disrupted, it could affect your business. The business impact analysis identifies possible effects from disruption of business functions and processes. It also helps you make decisions about recovery priorities and strategies to help you minimize the loss of income and customers.
To perform an impact analysis for your organization, have all business function and process managers complete an operation and financial impacts worksheet. Impacts to consider include:
- Lost sales and income
- Negative cash flow resulting from delayed sales or income
- Increased expenses (e.g., overtime labor, outsourcing, expediting costs, etc.)
- Regulatory fines
- Contractual penalties or loss of contractual bonuses
- Customer dissatisfaction or defection
- Delay executing business plan or strategic initiative.
Once all worksheets are completed, tabulate worksheets to summarize:
- the operational and financial impacts resulting from the loss of individual business functions and process, and
- the point in time when loss of a function or process would result in the identified business impacts.
Functions or processes with the highest potential operational and financial impacts become priorities for restoration. The point in time when a function or process must be recovered, before unacceptable consequences could occur, is often referred to as the “Recovery Time Objective.”
Recovery of a critical or time-sensitive process requires resources. Business function and process managers should also complete a business continuity resource requirements worksheet, which will help you determine the resource requirements for recovery. These resources may include:
- Office space, furniture and equipment
- Technology (computers, peripherals, communication equipment, software and data)
- Vital records (electronic and hard copy)
- Production facilities, machinery and equipment
- Inventory, including raw materials, finished goods and goods in production
- Utilities (power, natural gas, water, sewer, telephone, Internet, wireless)
- Third-party services.
Recovery strategies may involve contracting with third parties, entering into partnership or reciprocal agreements or displacing other activities within the company. Staff with in-depth knowledge of business functions and processes are in the best position to determine what will work. Explore possible alternatives and present them to management for approval and spending authorization. Depending upon the size of the company and resources available, you can explore many recovery strategies.
After a disruption, you might relocate operations to an alternate site — assuming it hasn’t been affected by the same incident. This strategy also assumes that the surviving site has the resources and capacity to assume the work of the impacted site. Prioritization of production or service levels, providing additional staff and resources and other action would be needed if capacity at the second site is inadequate.
Telecommuting can reduce alternate site requirements. This strategy requires ensuring telecommuters have a suitable home work environment and are equipped with or have access to a computer with required applications and data, peripherals, and a secure broadband connection.
In an emergency, organizations can convert other spaces into workspace, such as cafeterias, conference rooms and training rooms. These spaces will require furnishings, equipment, power, connectivity and other resources to meet workers’ needs.
You can also arrange partnership or reciprocal agreements with other businesses or organizations that can support each other in the event of a disaster. Assuming space is available, you must address issues such as the capacity and connectivity of telecommunications and information technology, protection of privacy and intellectual property, the impacts to each other’s operation and allocating. Agreements should be negotiated in writing and documented in the business continuity plan. Periodically review the agreement to determine if there is a change in the ability of each party to support the other.
Many strategies exist to help in the recovery of manufacturing operations. Manufacturing strategies include:
- Shifting production from one facility to another
- Increasing manufacturing output at operational facilities
- Retooling production from one item to another
- Prioritization of production—by profit margin or customer relationship
- Maintaining higher raw materials or finished goods inventory
- Reallocating existing inventory, repurchase or buyback of inventory
- Limiting orders (e.g., maximum order size or unit quantity)
- Contracting with third parties
- Purchasing business interruption insurance.
You can find worksheets for the business impact analysis and business continuity resource requirements and other useful information on business continuity at the website of the Federal Emergency Management Agency (FEMA), www.ready.gov.
For more information on business interruption insurance, which can replace income lost due to an insured disaster and provide the cash needed to help your business remain in operation during recovery, please contact us.