Monday, August 16, 2010

Returns Vs Costs: Argument FOR Emergency Planning

Keeping operational costs at as low a figure as possible is crucial in today's world market. Banks and financial institutions have failed, ad its put a tremendous strain on business's. It's really a disaster unto its own. And that is why it is so important to seek out and retain the services of an Emergency Management professional. But the cost is the concern, right?

The cost of NOT planning should be your focus. Lets look at some figures for a bit.

You hire an EM consultant to help make your plans. Consulting rates for any thing these days is high; a little over $81.00 per hour on the low side, and reaching to over $200.00 on the high side. For this exercise, lets say the rate is $115.00 per hour. In order to create a comprehensive plan to protect a medium large to large business, its going to take approximately 16 weeks (probably more, depending on what planning exists). It would also be fair to assume there would be 35.5 billable hours per week during the process. So, the simple math tells us the cost of creating the plan is around $59,800.00.

That isn't the end of the costs, because there is annual (preferably twice annually) testing of the plan, review, revision etc., which would add about another 25 to 30 hours annually. That is really small change though in the grand scheme, coming in at $3450.00 on the high side, using the same hourly rate.

Now, lets look at the other side of the equation, the potential losses.

The goal of Emergency Planning is to get critical business functions back up and running within 72 hours. If your business is the average medium large to large company, daily revenues would be somewhere about $25,000.00 per day. Assume then that you will certainly loose profits for at lest one day before critical functions are up, and then another day at half function, the existing loss would then be $37,500.00. This of course assumes you've planned. For those who haven't planned, there will be at least 3 days (72 hrs) down. Already that's $75,000.00, plus facility losses, plus lost documentation, worker downtime, production downtime; well, you get the picture. Most companies without plans find they need 5 to 7 business days for resumption of critical business functions to occur. That means a loss of $175,000.00 on the long side, $125,000.00 on the short.

Lets go to the low side, and say 5 days lost, for $125,000.00. Now if you had planned, and we use the one and a half days to resume critical functions, a loss of only $37,500 there is a saving of $87,500.00. THE PLAN HAS MORE THAN PAID FOR ITS SELF!

Take this into account too: 80% of businesses that suffer some disaster that do not get there critical functions up and running within 72 hours fail within the following year. Of the remainder, 20% will fail within two years. Not encouraging numbers.

So, in the grand scheme of things, some money spent now will have a significant ROI the first time the plan needs to be enacted, and we haven't talked about litigation from failure to deliver on terms of contract (meting purchasing requirements from suppliers, failure to deliver to customers etc.) and employee litigation's for negligence and more. Now the loss figures could be into the millions.

So, my advice; do some planning. With a consultant on board, the process is largely in the background. There is minimal disruption, and the benefits sure outweigh the inconveniences.

Till next time, remember: Knowledge is Resilience
Keep Safe
Greg Long, President; TEN33 Disaster Preparedness Consulting