Business, Resiliency and Effective Disaster Recovery

Anne Kleffner, PhD Haskayne School of Business, University of Calgary

CRHNet October 2012

Agenda

Business resilience and community resilience in disaster response and recovery: What is the relationship?

What contributes to Private Sector Resilience? Risk management (awareness, identification of critical risks,

etc.) Insurance and other risk financing options Robust supply chains Effective business continuity plans

Partnerships between private sector and public sector

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“The consequences of hazards exploit the interconnectedness of today’s

society …. Through the recognition of these

interdependencies, the response and recovery phases of disaster

management can begin to leverage the inherent adaptive capabilities of the public and private sectors to impact

community resilience.”

Stewart, Kolluru, Smith

Private and Public Sector Resilience: The Interdependence

“A company can’t fully bounce back unless its customers and employees do.”

Government recognized that if businesses don’t survive, the community won’t bounce back. … And businesses recognized that if the community suffered, its employees couldn’t come back to work.

It is in the interest of both to get the whole community back up and running.

A Shift in Thinking

Entergy Corporation

Its headquarters building was relatively unaffected by Katrina, yet the devastation in the surrounding area made it impossible for employees to get to work.

Working with governments and environmental organizations to preserve Louisiana’s coastal wetlands, which help to blunt the impact of major storms along the state’s coastline.

Private Sector Contributions to Resilience

Shell: Investment in the affected area after Katrina Wal-Mart: Staff, supply chain capability, re-

opening stores quickly Waffle house: A practical indicator to assess the

disaster Private utilities: Speed the repair of power, water

and other services by improving communications with government agencies.

Grocers: Provide food, water and other supplies to emergency responders and evacuation centers

How to Measure a Storm’s Fury One Waffle at a Time

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The New Normal

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No longer does the public sector think “we have it under control” or the private sector think “this isn’t our job”.

Private sector engagement in disaster management is essential Explicitly through private/public partnerships. Implicitly through resilience that provides stability and

resources.

What factors create private sector resilience?

Organizational Resilience

Key Factors

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Private Sector Resilience

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Key factors in resilience: Risk management (awareness,

identification of critical risks, etc.) Insurance and other risk financing optionsRobust supply chains Effective business continuity plans

Risk Management

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Process to identify, assess, evaluate & treat risks

Prioritize the most important risks Supply chain risks, power, human resources, etc.

Allocate resources to treat risks Business continuity management (BCM) Insurance and contingent capital Address critical business functions – importance of

coordination with public sector

CSA-ISO 31000 Framework

Source: CSA (2010)

Risk Management

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Role of the public sector: Create awareness Provide education Offer risk management workshops, tools for

companies to assess risk, etc. Collaborate Create partnerships

Supply Chain Risk

Building Resilience

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“…the frequency and impact of natural and man-made disasters is increasing. ….

Without the benefit of a thorough supplier risk analysis, companies can simply underestimate their exposure and overall investor impact when supply chain logistics and cost aren’t optimized and counterbalanced with proactive risk management tactics.”

Linda Conrad, Zurich Financial Services.

What has Increased Supply Chain Vulnerability?

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Supply Chain Disruption Impacts –Tohoku Earthquake

Supply Chain Disruption Risk

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“Supply chain risks present the most serious threat to business continuity..” -- Professor Martin Christopher

Many disruptive events have broad ranging impacts across many supply chains and cannot be prevented. … This creates the need to develop resilience.

Financial Impact of Disruption

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Improving Supply Chain Resiliency

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Understand the supply chain Identify pinch points, critical paths.

Create redundancy & flexibility in the SC (ex ante) Robust: Extra inventory, using multiple

suppliers, etc. Flexible: Ability to react quickly

Develop operational contingency strategies (ex post): Ex: Using alternative suppliers, redesigning

products, etc.

Improving Supply Chain Resiliency

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Supply chain collaboration Exchange of information and application of

shared knowledge can reduce uncertainty

Greater visibility of upstream and downstream risk profiles

Work with the public sector to identify and address pinch points and critical paths that are essential for disaster response and recovery

Corporate Culture and Resiliency

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What makes companies flexible and resilient? Able to detect problems and take corrective action

before the potential disruption becomes disastrous

Empowerment at the lowest level of the organization to act quickly in a crisis

Encourage the airing of problems and empower individuals to raise the alarm

This is also relevant and important for the public sector!

Financing Recovery

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What is the cost of business continuity?

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The ripple effects of a supply-chain disruption are far reaching (earthquake and tsunami) Physical damage was in the northern part of the

country … electricity shortages and rolling brownouts elsewhere.

Led to shutdowns at factories far from the disaster, even causing production interruptions across the globe.

How to mitigate the effects of disruption? What will it cost to keep the business

running?

Financial Resources to Recover from Loss

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Property Insurance Money to rebuild

Business Interruption Insurance Cover lost income after a physical loss Cost for transferring operations to an alternate site

Contingent Business Interruption & Extra Expense Insurance Key supplier or customer

Supply Chain Insurance Doesn’t require physical damage (Japan earthquake)

Conditional Financing: Contingent Capital

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Provides funds to be used to recover from a supply chain disruption -- provides a means for survival.

More flexible than insurance.

Ideal for infrequent but costly disruptions.

Financing buys agility, flexibility. identify upfront strategies to ensure business

continuity

Private Sector Preparedness

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“Private sector preparedness is not a luxury:

it is a cost of doing business.It is ignored at a tremendous potential

cost in lives, money and national security.”

--Stovall

Dilbert on Disaster Recovery

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Critical Importance of BCM

BCM Depends on Business Understanding

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Understanding a business is founded upon identifying: Mission Critical Activities (MCAs); Internal and external dependencies for the

MCAs; Identify the dependencies that either support or

provide input to these MCAs Single points of failure of the MCAs; Internal and external influences that impact

upon MCAs.

Dependencies that May Support or Provide MCAs:

© BSI 24 March 200331

human resources; suppliers (internal or

external service providers);

customers or clients; facilities;

functions; processes; materials; technology; telecommunications; data (all formats &

media).

Addressing dependencies requires a partnershipbetween the public and private sectors

“Hurricane Katrina was the watershed moment when people realized that emergency management officials

couldn’t respond adequately to major disasters without better coordinating

efforts with the private sector…Walmart and other large retailers used

their sophisticated logistics infrastructure to help communities bounce back.”

David Raths.

Public-Private Partnerships

Integrate private businesses and non-profit organizations into disaster planning programs Win-win: Accomplish more with less. Tap into technical, management, and

financial resources in new ways Help businesses get more situational

awareness Improve information & resource sharing

Critical Infrastructure

Services relying on critical infrastructure Transportation, energy, electricity, banking,

telecommunications, food supply and clean water Large portion owned/operated by private sector Necessary for economic prosperity, quality of life,

etc.

“We need to understand their emergency response efforts and we need to share information more actively.” --Raths

How to Involve the Private Sector?

Determine what planning, training, exercise, personnel and equipment gaps may exist due to lack of physical assets, expertise, etc.

Identify these gaps prior to the emergency and attempt to fill these gaps as soon as possible.

Huge opportunity to tap into the expertise & resources of the private sector

Potential Private Sector Partners

Utilities Transportation

companies Engineers Building inspectors Communications Debris monitoring and

management

Temporary housing manufacturers

Construction companies

Food, water, ice retailers,

Hardware retailers Private security

companies Restoration

Potential stakeholders in emergency and disaster prevention, mitigation, preparedness, response, and

recovery.

Example: Accessing Private Sector Expertise

Wal-mart and Home Depot: Effective because of their expertise at logistics and management of the supply chain.

UPS created the transportation portal for the Aidmatrix Network to help deliver food and other supplies to regions affected by disasters.

Wafflehouse: Practical information for immediate assessment after a disaster.

Public-Private Partnerships: What works?

Buy-in from the business community Key to effectiveness and sustainability

Coordination and collaboration on disaster response planning What elements are essential to both?

Exchange of information Establish liaisons between government and

businesses in the event of a crisis; Coordination of critical supplies & distribution Optimize the use of scarce resources

Resilient Business. Resilient Community.

Resilience to disasters rests not only or even primarily on traditional preparedness activities but on building economically strong communities whose members can work together and use information to make decisions and act. -- Fran Norris

The private sector must be an explicit partner in and fully integrated across all levels of response

Partnerships will enhance comprehensive hazard mitigation, preparedness, response, and recovery programs in the community.

Questions?