Overlooked Risks of Hurricanes and Other Disasters
John Pryor | September 8, 2017
As of this writing, the wrath of Hurricane Harvey imposed on Houston and surrounding areas has not even begun to be tabulated and quantified. The question of how many businesses will survive is yet to be addressed. However, many risk managers understandably compare Hurricane Harvey with Hurricane Katrina, which curiously occurred during the same week in 2005 as Harvey did—August 23–31.
Therefore, data from 12 years ago can reasonably be interpolated to this current disaster. These same data can be transposed to other disasters such as earthquakes, tornadoes, and—heaven forbid—an electromagnetic pulse or, even worse, a nuclear attack by another nation. This latter event is an emerging risk we read and hear about almost daily in national and local news media.
The following are some data from the US Census Bureau about Hurricane Katrina that you can reasonably extrapolate to Hurricane Harvey or any other disaster.
| Metro New Orleans | 2005 | 2006 | % Change |
|---|---|---|---|
| Population | 1,386,000 | 1,040,000 | -25% |
| Housing Units | 592,800 | 438,278 | -26% |
| Employees | 517,184 | 427,373 | -17% |
| Grocery Stores | 573 | 430 | -25% |
| Gas Stations | 447 | 407 | -9% |
| Drug Stores | 221 | 165 | -25% |
| Hotels | 259 | 227 | -22% |
| Restaurants | 2,138 | 1,860 | -13% |
On the other hand, certain other industries benefited from the disaster of Katrina, especially construction firms.
| Residential Construction | 635 | 652 | +22% |
| Commercial Construction | 189 | 220 | +16% |
The question is: If these businesses had good disaster plans—and most usually do—why did 25 percent or so not survive Katrina?
Business Continuity Plans (BCPs)
As was vividly evident on the extensive television coverage of Hurricane Harvey, the purpose of disaster plans is to save lives, not to save businesses. The outcomes so far have been wonderful! Rescues and medical care clearly were effective, and lives indeed were saved.
The missing link, of course, is an entirely distinct planning system. While disaster plans save lives, BCPs save businesses.
Most disaster plans can be accessed in the form of a template. 1 This includes not only major events such as a hurricane, earthquake, or other catastrophes, but it also includes isolated events such as single structural fires, bomb threats, harassing phone calls, workplace violence, etc.
However, this is not the case with a BCP. In this context, it's not uncommon to find that a BCP is the opposite of a disaster plan—5 percent template (or format) and 95 percent individually unique content. It begins with a standard process map that "sets the stage" for the unique elements that follow. It then moves to meetings and workshops in which a "business impact analysis" is defined, agreed upon, and put into writing in simple worksheets.
The worksheets define the following.
- How customer service is adversely affected during the first 24 hours, then 24–48 hours, followed by one week, and then beyond
- Resources required during the same time frames for recovery and restoration of operations
As you can surmise, data in each of these templates will vary significantly from business to business.
Protect Supply Chains
Of special importance are plans for restoration or replacement of supply chains. A disaster can adversely affect your business, even though your operations are located well outside the disaster area. As a major source of parts, inventory, etc., this kind of distant event can have a major negative effect on the revenue of a business. This was highly evident in the Fukushima earthquake and tsunami in 2011.
Be Prepared
As always is the case in risk management, the key is to be proactive, not reactive. The ability to foresee what can "go wrong" internally or externally is what risk managers do so well. When thinking through these scenarios and, if desired, conducting "table top" exercises, such risk mitigation efforts require time well in advance of any event.
To engage in such critical planning, lots of assistance are available on the Internet and other places.
- Software packages are described and available for purchase—and other sites offer complimentary BCP descriptions.
- Counsel is provided by risk management consultants (for a fee) and insurance brokers (either for a fee or as part of their service "package"). (Even insurance brokers need a BCP for their own operations so they are well prepared to assist their clients when their clients need them most!)
- Books on risk management (including mine) describe these steps.
The crucial point is for business owners and managers to begin this process without delay. Although firms in Texas had a week of advance notice of Hurricane Harvey, that's insufficient time to prepare effectively.
Once you have worked through this process, your business should be well positioned to be a survivor—especially if you update your BCP from time to time as changes occur in your operations. You, unlike perhaps your competitors, will enjoy the long-term benefit of proactive risk management—a quiet night's sleep.
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