Managing Business Disruption
STEP 1 - Manage Variables WITHIN the Control of a Business

Customer, Supplier, and Business Records - Losses to businesses can be far greater in the weeks and months following a disaster due to changes in customer base and business interruption than due to direct physical impacts of the disaster on a business. Strategies to minimize hazards and exposures are really just another form of smart business practices. The most effective strategy is a simple one - keep important records in more than one place. If most of your records are kept on computers, back up those records in a timely manner and store the information somewhere else. Small businesses can even store a back up copy of key items at home, or, preferably, in an area not likely to be impacted by the same disaster. The key records are more than insurance policies and building lease or ownership agreements, for they go to the heart of a business, including such items as customer and supplier records in case the business will resume operations in an alternate location.

The World Trade Center was occupied by small businesses as well as large financial firms. It "was home to hundreds of diverse companies, a polyglot village spanning everything from Asian food importers to graphic designers to dentists. Those companies, more than half of which had fewer than 20 employees, became refugees on Sept. 11," noted the New York Times. "Margo Murray and Sonia Espinoza sat at a conference table at the office of a friend ... on Monday, Sept. 17, less than a week after the towers' collapse. ...The only problem was that Murray Surety Bonds, like hundreds of other businesses at the trade center, had lost all its records, even its backed-up data, making the return to business of the two-person firm virtually impossible. ... The company had several thousand clients and business associates. By day's end, they had written down the names of 20." (New York Times, Wed. Sept. 11, 2002, pg. 24; photo source - Corbis Images at www.pbs.org).

Creating a Safer Business Environment - Many businesses are tenants in buildings owned by others. Their control over the structural integrity of those buildings is limited. They may be best served by ensuring appropriate language in lease agreements, as noted below. On the other hand, they should be knowledgeable about the vulnerability of their offices to damage. The Safety Quiz section of this web site provides basic information. Of more importance, they need to be concerned about other aspects of the safety of their workplace, for most injuries are caused by falling objects, not by structural collapse. The Safety Quiz also includes these "nonstructural" hazards. A severely injured worker cannot contribute to the rebuilding of a business after a disaster. In addition, an injured worker is a potential workers' compensation claim and injured customers are potential lawsuits in the making. (See the resource section on Liability of Businesses for Earthquake Hazards and Losses for more information.)

Lease Agreements - Businesses should ensure that their office space lease contains provisions that allow them to move out if the building becomes unacceptably damaged and the owner cannot repair it in a timely manner. A study funded by the Public Entity Risk Institute notes that "Firms that operate in leased space with inadequate lease provisions concerning who repairs earthquake damage and how quickly it will be done will find themselves in trouble. In Northridge, many business owners found themselves stuck in buildings that were not repaired for a long time by virtue of a lease that kept them from moving to another location where they could resume business" (Alesch and others, 2001).
Shaking Intensity and Disruption - When Lease Agreements Won't Work - A difficult problem is that of a tenant in a building that is completely functional after a disaster in an area that has been decimated, particularly if the business relies on "foot traffic" for sales. Neighborhood and downtown retail districts may well recover as a whole based on the integrity of all of the businesses - and their buildings - rather than on the precautions taken by a single business. University of Delaware researchers found that "irrespective of their own individual levels of damage and disruption, businesses that were located in high MMI shaking intensity areas were less likely to recover. High-shaking areas had more extensive residential damage and more pockets of highly concentrated damage, and evidently these kinds of neighborhood- and community-level impacts influenced recovery outcomes for businesses. Physical damage and business interruption, per se, were not related to recovery" (Tierney and Dahlhamer, 1998). (Photo source - Storefronts in Watsonville following 1989 Loma Prieta earthquake by James R. Blacklock, Earthquake Engineering Research Center, University of California, Berkeley.)
Insurance Coverage - Applicable insurance coverage for disasters goes beyond specific "earthquake" insurance, or even property insurance, to include liability and business interruption insurance. While insurance policies can never fully cover all damages and disruptions, they are far better than nothing. Talk with your insurance agent! A study funded by the Public Entity Risk Institute notes that many "...organizations we interviewed ... had inadequate or inappropriate [insurance] coverage. Many of the respondents thought they were covered. In the case of earthquakes and floods, others thought they could get along without it, but found they could not - at lease not without applying their life savings to their attempt to become viable again" (Alesch and others, 2001).

Diversity and Redundancy - Redundant and diverse systems are more stable. Thus, businesses are more stable if they have a diverse customer base and multiple business locations, even if that alternate location is an e-business one. Customer diversity can ease the transition from those within an impacted area to those outside of that area - or from a reliance on one type of product to another product that is more in demand in the post-event economy.

ABAG, the Association of Bay Area Governments, is the regional planning and services agency for the nine-county San Francisco Bay Area.
The writing and production of the materials and reports of this page and the others in this section of the ABAG Earthquake Program web site were funded in large part by Grant No. 01-HQGR-0214 from the U.S. Geological Survey (USGS), as well as by the Association of Bay Area Governments. Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the funding agencies. Last updated 4/7/04 by jbp.