Disaster Planning & Recovery: Expecting The Unexpected

The debris of Hurricane Andrew, the ashes of the Los Angeles riots, the mud
of the 1993 floods in the Midwest, and California’s major earthquakes
vividly remind us of the toll – both emotional and monetary – that
disasters can wreak on business.

While you can’t stop the physical forces of nature, you can plan ahead
to mitigate their devastation. Thinking about disasters before they hit can
help save a company’s resources, protect the safety of its employees, and
minimize business interruption.

For San Francisco-based graphic design firm Design Vectors, a series
of close calls inspired the company to develop a disaster management plan.
First came the 1989 Loma Prieta earthquake, which left the building
undamaged but employees shaken, explains account executive Ruth Schwartz.

A few months later, the staff came to work one morning and found that
burglars had broken into the offices. “They entered through a transom and
couldn’t get major equipment out,” Schwartz recalls. “But they did steal
some smaller items.” Then the firm moved to new quarters – and two weeks
later the building next door caught on fire. Again, Design Vectors emerged
virtually unscathed. The only harm: a little smoke damage and a few rattled

However, all these brushes with catastrophe prompted Design Vectors’
10 employees to seriously think about disaster planning. When the company
went on its annual retreat to plan its goals for the upcoming year, one of
the priorities that emerged was to develop some basic emergency procedures.

Designing A Plan

Every company should tailor an Emergency Management Plan (EMP) to meet its
specific needs. No single plan will fit all businesses. A mid-sized firm
may want to develop an in-depth 100-page plan complete with flow charts. A
smaller operation might decide to establish a few basic principles on a
single page. If you do choose to write a plan, keep it as simple as
possible. Use short declarative sentences. You don’t want to overwhelm or
confuse employees, who may already be nervous during an emergency

The first step for companies of any size is performing a risk
assessment so that the plan factors in the types of disasters most likely
to occur. With these in mind, the plan should then cover how best to
protect personnel and resources, and how to get the business up and running
as quickly as possible.

Safety And Evacuation

Protecting lives should be the top priority of any EMP, which ideally
specifies who will inform new employees about safety and emergency
procedures. The EMP should also put someone in charge of posting and
periodically briefing all personnel on revisions to the procedures. When
catastrophe hits, people may be in a panicked state, and an accessible
outline of basic safety procedures can be a lifesaving reminder.

All businesses should post evacuation maps that show the fastest and
safest way out of the building, and list emergency numbers such as police,
fire and ambulance. Pick an anniversary date – for example, the day clocks
are changed for daylight savings time – and verify that all phone numbers
are up to date. This could also be an opportune moment to check fire alarms
and extinguishers and stage a fire drill.

The safety section of the EMP should also include provisions specific
to the company’s facility. For example, it may explain how to turn off gas
and electricity. It may list the name of a company that boards up windows,
so any hazard at the business does not harm the public, and so the firm is
protected from theft. And it may list the home phone number of the building

When an electrical problem caused fire to strike the Blue Coat Inn in
Dover, Delaware in January 1992, the owners were lucky – it happened on a
Monday morning when the restaurant was closed. A janitor heard a loud pop
from the electrical panels and saw flames. After his efforts to put out the
blaze with an extinguisher failed, he alerted the town’s all-volunteer fire
department. The fire destroyed the electrical system, a walk-in
refrigerator and a storeroom, but firefighters confined it to the kitchen
and, except for smoke damage, the fire luckily did not harm the dining

After two weeks of hard work, the Blue Coat Inn was back in business.
But owners John and Marlene Koutoufaris and their son Marc immediately
decided that they needed to put some emergency procedures in place.
“Before the fire, we didn’t think it could ever happen to us,” Marc
Koutoufaris explains, “and we had no formal emergency management plan. Now
we do.” The restaurant has always held monthly meetings with all
employees. Now that meeting includes training on how to handle emergencies.
For example, working with the local fire department, Koutoufaris set up an
evacuation plan so that if an emergency occurred on a busy Saturday night,
his staff would know exactly what to do to vacate the restaurant quickly
and safely.

“Our dining area has 325 seats,” he says. “I drew up a map of the
restaurant on my computer. All the servers know how to evacuate their
sections.” Training also includes how to keep patrons calm. “My employees
know not to yell ‘fire!’ which could cause people to panic. They are
trained to take control – to calmly but firmly tell customers ‘There is a
need to evacuate. Follow me, I will take you out of the restaurant.'” Each
server is also trained to lead patrons to a circular drive large enough for
them to gather outside the premises. “Having everyone congregate in a safe
zone prevents them from rushing to their cars, and possibly blocking the
driveway where fire trucks would need to enter,” notes Koutoufaris.

Protecting Employees

Another good idea to protect lives is to create an emergency personnel file
containing a card for each employee which lists names to call in an
emergency and provides medical information. Make sure everyone is aware of
the file’s location, because if the person who gets hurt is the only one
who knows where the file is, it won’t do much good. Also stress to
employees the importance of updating the file if any information changes,
and review it annually. Some companies go a step further by hiring a
specialist to train all employees in first aid and cardiopulmonary

Entrepreneurs should protect not only the physical safety of their
workers, but also their jobs. Even if all employees are safe after a
disaster, damage at the business site may prevent them from fulfilling
their regular duties for a few days or even weeks. If possible, try to keep
them working on a project of some sort – even if it’s cleanup. Employees
will feel more psychologically secure knowing they are doing what they can
to help the company and preserve their jobs. And once you have resumed
normal operations, you will need workers who know their jobs well. The
recovery phase is no time to hire and train new employees.

After the fire at the Blue Coat Inn, Koutoufaris put several employees
to work canceling existing reservations. When his insurance company
suggested that the restaurant hire a cleaning crew, Koutoufaris had some of
his staff get involved with the cleaning service. “We didn’t want to lose
our employees. It was unifying for them to help get the restaurant back in
business as soon as possible.”

Owners must also consider the mental and emotional well-being of their
employees. Disaster disrupts not only professional lives, but personal ones
as well. Many entrepreneurs take extraordinary efforts to help workers
after a catastrophe. When Hurricane Hugo hit the Virgin Islands, for
example, some businesses arranged to get food, cash and personal supplies
from the mainland so employees could focus on work and not be preoccupied
with the survival of their families.

Remember, too, that emotional recovery may take longer than physical
recovery. After a disaster, watch for signs of stress in your staff to
determine if they need special help. Staging a meeting where the owner
expresses concern for the welfare of employees and offers to be available
can reassure them. The positive and supportive attitude an owner projects
will be contagious among the staff.

Computer And Paper Files

Besides people, a firm’s most valuable assets may not be expensive
equipment or furniture – items that are difficult to protect and relatively
easy to replace – but rather paper and computer disks. Company files –
financial records, strategic plans, personnel information, insurance
records, research – are its lifeblood.

One approach to safeguarding computer and other files is for the EMP
to outline three categories – useful, important and vital – and then
designate a plan for each category. For example, “useful” everyday
documents that can easily be recreated might be stored on a hard drive.
“Important” documents that you can recreate with some effort might be
stored on both the hard drive and back-up disks kept in the office. And
“vital” documents might be stored both in the office and in a secure
location off site such as a warehouse, a safety deposit box, or another
regional office. Someone should be responsible for periodically updating
the categories.

Marilyn Marks, chief executive officer of Dorsey Trailers in Elba,
Alabama, recommends keeping the most vital documents at least 50 miles
away. “When we were hit by a flood, we had back-up records in a bank vault,
but the bank was flooded, too.” She also suggests keeping insurance papers
and an extra list of important telephone numbers in the designated off-site

Keeping Facilities Safe

Your EMP should include plans for keeping your facility safe. Make sure
that basic safety measures such as fire alarms, smoke detectors, fire
extinguishers, burglar detectors and locks are in place. No matter how many
precautions you take, you cannot make your site immune from disaster. But
a comprehensive EMP will outline a contingency plan in case an emergency
renders your facility inoperable to minimize disruption and loss.

At the very least, you will need a place with a phone and fax machine
so you can contact employees, vendors, customers, insurance agents, bankers
and emergency agencies as appropriate. You may also want to investigate
sources of rental equipment and furniture.

Incorporate all the relevant elements into your EMP now so you don’t
have to start from scratch should catastrophe strike. If your business is
very small, you might consider contacting other small companies in the
vicinity and forming a disaster consortium that could collectively
negotiate with a hotel to rent a suite of rooms to use as temporary office

When James Pandl’s $2.5-million-a-year restaurant, bar and catering
business in Milwaukee was shut down by a devastating fire in August 1989,
he turned to his parish church, seven miles away. Using the church‘s
kitchen, he was able to get his catering operation up and running within a
week, which meant he didn’t have to cancel orders that had been booked
months in advance and lose significant revenue.

Effective Communication

While entrepreneurs may not be able to prevent physical damage caused by a
fire, flood, earthquake or other disaster, they can prevent damage caused
by poor communication. The message you convey after a catastrophe can
either heal or wound your business. Despite all the recovery considerations
that must be addressed, you mustn’t forget to keep in contact with the
people most important to your company – your employees, customers, vendors
and banker. And although you may not be able to talk to each person
individually, you can make sure your message gets out effectively.

Your EMP should designate one person to craft and disseminate this
message. Multiple or conflicting spokespeople can create confusion. In a
small firm, the owner often serves as chief spokesperson. In a medium-sized
company, it may be the public relations director. The spokesperson is
responsible for outlining a clear message that conveys the business’ intent
to recover and any other relevant details. The spokesperson is also
responsible for keeping a list of phone and fax numbers of people who
should get the message, and following up to make sure it was received.

Depending upon the size of your business, your EMP may set up a
telephone tree to reach employees. The way this works is that the
spokesperson contacts captains who are assigned to call two or three staff
members. They, in turn, call several other employees. People who cannot
reach their assigned colleagues check back with their captain, who then
tries to personally contact the missing employees. The spokesperson should
update the telephone tree list annually and give a copy to each employee to
take home.

Because telephone lines may be down in some emergency situations, you
may have to find other ways to contact staff members. When Dorsey Trailers
was hit by a flood, for example, Marks sent her parents out in her
four-wheel-drive Jeep to visit as many employees as possible and convey
that she and other staff were working around the clock to save the
business. As a result, a number of people showed up at the plant to help
the clean-up efforts.

If some people in the company have cellular phones (that will work
when regular phone lines are down), make sure everyone knows the locations
and numbers of any such alternative phones.

After employees, customers should be next on the list of people to
contact, as they may be worrying about you and any outstanding obligations
you have with them. After all, you don’t want them to rely on rumors when
deciding whether to wait for you, or go to your competitor.

As the phones were out at Dorsey Trailers after the flood, Marks
crafted a letter for her customers and vendors, and had Dorsey’s Atlanta
office fax it out the next day. “The letter let them know that we were
okay,” Marks explains, “and told them where they could reach us. It had a
calming effect.”

After the fire at Pandl’s Bayside Restaurant, James Pandl assured
customers and contractors about his commitment to reopen by advertising a
reopening date of December 15 and taking reservations for the Christmas
season. “Setting a deadline was a risk,” he concedes, “but it let everyone
know I was serious.” The deadline also gave him leverage with his insurance
company, which agreed to approve costlier changes to the building because
the early reopening date shortened the interruption-of-business period it
had to pay for.

If an enterprise is important in the community, local reporters may
call the owner for a reaction. It’s a mistake to refuse to take reporters’
phone calls, as they may cover the story anyway – without your message
getting out. Look at media inquiries as an excellent opportunity to let the
public know you are going to be back in business soon.

One of the most useful pages in any written EMP is the one containing
phone and fax numbers. After a catastrophe, this list guides the business
owner and spokesperson. When designing your EMP, think about whom you might
need to contact.

Possibilities include:

Emergency numbers – Police, fire, ambulance, local hospital, the Red Cross,
building security, utility companies, building manager.

Government agencies – The U.S. Small Business Administration (SBA), the
Federal Emergency Management Agency (FEMA), your federal and state
representatives, post office.

Media – Local newspapers, television and radio stations.
Important contacts – Vendors, clients, insurance company, attorney, banker,
chamber of commerce, trade associations.

Recovery services – Personnel agency, equipment rental, alternative office
space, computer experts, industrial cleanup services, mental health

Keep the list in three places: at the business premises, at home, and
in a secure off-site location such as a safety deposit box or your regional

Insurance Coverage

Every EMP should have procedures for making sure insurance coverage is
adequate and up-to-date. Most businesses think about two major types of
risk: property loss and liability insurance. While large companies
frequently buy separate policies for each, small- and medium-sized firms
typically buy a package policy – the Business Owner’s Policy (BOP) – that
is designed for small offices, apartment houses and retail stores. While
the BOP is less expensive than the non-packaged deals, one disadvantage is
that it lacks flexibility.

“Many businesses have inadequate coverage,” claims David Adler, a risk
manager for an Atlanta real estate firm, “but not in the amount for which
they are insured. Rather, the type of coverage they choose is lacking.”
Entrepreneurs need to ask a variety of questions when buying
insurance. Which disasters does the plan cover, and which are excluded?

For example, most standard insurance policies do not cover floods or
earthquakes, and owners need to judiciously assess their need for such
optional coverage. Does the policy include business interruption coverage,
and if so, for how long? Are equipment and property insured for the cost of
replacement at today’s prices? How much extra expense coverage do you need
to take care of leasing equipment and hiring temporary employees while the
company is getting back to normal?

Business interruption coverage is definitely worth considering, as it
pays what you would have earned had the disaster not occurred. Remember
that some catastrophes can render your premises “workless” for more than
just a few days. A week’s worth of protection in the World Trade Center
disaster in New York City would not have been enough, for instance – nearly
350 small and large businesses were shut out for a month.

Another added coverage to seriously consider is extra expense
insurance. It pays for temporary use of people and machinery so you can
resume operations quickly. Some small companies cannot afford to be out of
business for even a few days because they risk losing their clients. You
should also consider having extra expense coverage to pay for salaries of
key employees if they are temporarily out of work – you don’t want to lose
them to competitors.

Because insurance is expensive, it’s important to have enough – but
not too much. One rule of thumb is to obtain adequate coverage to get you
operational without strapping the company’s cash flow. Typically, this is
approximately equal to what the firm is worth.

Deductibles are another important consideration in shopping for
insurance policies. By taking a larger deductible – and, of course, making
appropriate plans to handle it if necessary – you can usually buy more
coverage for a specified premium. A lower deductible raises the cost of
the premium.

Buying insurance is not like buying office supplies, and price alone
should not be the deciding factor. You want to purchase insurance from a
reputable company, and can investigate them in a number of ways.
Alternatives include your state’s insurance department or insurance
commissioner, and the Insurance Information Institute. You can also check
a company’s financial stability by finding out if it has a rating with
organizations such as Standard and Poor’s or Moody’s. Ask your insurance
carrier, stockbroker or the local librarian. Ratings can help you gauge if
the company will be around when you need it. Most use letter grades, and
A-range companies are considered the safest.

Because insurance claims take time to process, entrepreneurs should
have another source of money ready in the interim. One idea is to talk to
your banker about establishing an emergency line of credit.

The Bottom Line

The biggest mistake a business owner can make about disaster planning is to
think, “It can’t happen to me.” And while finding the extra hours necessary
to develop a disaster recovery plan may be difficult, think of those hours
as part of your investment in insurance. In the past few years, plenty of
headlines have warned what can happen – hurricanes Hugo, Andrew and Iniki;
the earthquakes in the San Francisco Bay Area and Los Angeles; Chicago’s
underground flood; the explosion at the World Trade Center; the storms on
the Eastern Seaboard and the seemingly unending floods in the Midwest. And
smaller, less visible disasters – usually fires – strike businesses every

Although government disaster assistance programs can help, government
resources are strained, and companies cannot count on federal disaster
assistance from the SBA alone to get them back in operation quickly.
According to one insurance industry study, almost half – 43 percent – of
businesses closed down by a catastrophe never reopen. Competitive firms
take an aggressive approach by identifying the most likely disasters and
taking steps in advance to mitigate possible negative effects.

When disaster strikes, business owners need to have their wits about
them, which isn’t easy under stress. Planning ahead allows you to make
crucial decisions when your judgment is clear. In fact, a farsighted EMP
might even include how to turn a disaster into an opportunity – for
example, by redesigning your facility more effectively. When Marks rebuilt
the Dorsey Trailers plant, the new design included numerous improvements
and cost-saving measures that helped the company bounce back. Since the
flood hit three years ago, Dorsey Trailers has nearly doubled its annual

A year after fire damaged the kitchen at the Blue Coat Inn, the owners
commemorated the event by designating different menu items “firefighter
specials.” The meals were named after members of the volunteer fire team
that helped save the business. “We have items named for the fire chief on
down to the dispatcher and all the firefighters,” says Koutoufaris. The
restaurant is also working with the fire department to help publicize
safety measures such as checking fire alarms and smoke detectors. “We are
turning a negative experience into a positive one.”


More than a foot of rain had fallen on the tiny town of Elba, Alabama when
a levee on the nearby Pea River gave way at 6:30 a.m. on March 17, 1990.
Water rushed through the town, rising so high and so fast that nothing in
its way could be saved – including the Dorsey Trailers manufacturing plant,
where about 700 of the town’s 4,400 residents worked building truck

Swift currents of water rose 10 feet high, picking up heavy truck
tires, spare parts and raw materials at the Dorsey plant and scattering
them all over town. When the water finally receded two days later, mud,
sand, sewage and corrosion were left on everything inside the plant that
had not been carried away. Wood floors and office walls were soaked and
buckled. More than $1 million worth of trailers was damaged beyond repair.

When company President and CEO Marilyn Marks surveyed what was left of
the 79-year-old company, she made a phone call she did not think she would
ever have to make – to a bankruptcy lawyer. But then Marks was contacted by
Dick Nash, regional director of the U.S. Small Business Administration, who
offered SBA’s assistance in securing a disaster relief loan for the firm.

Dorsey Trailers’ $25,046,400 loan was the largest such loan ever
distributed by the SBA up to that time. The SBA’s normal $500,000
administrative limit did not apply because the company fit a special
category as a major source of employment.

Today Dorsey Trailers is doing better than ever. According to Marks,
annual sales in 1990 were $90 million and in 1993 sales almost doubled to
$175 million. The company now employs about 1,000 people in the community.
“The loan made the difference,” declares Marks. “Without it we would
not be in business today. And hundreds of people would be out of work – not
just Dorsey jobs, but lots of jobs in the rest of the town as well.”


If a catastrophe does occur, many companies, organizations and individuals
seek assistance from state and federal agencies. The primary federal
resource for business is the U.S. Small Business Administration (SBA),
which offers several loans in disaster-ravaged areas. This emergency
assistance program is the SBA’s largest direct loan program.

SBA Disaster Loans

In 1992, the SBA distributed 8,143 business disaster loans for $443
million. Those numbers jumped to 16,047 loans for $811.3 million in 1993.
The SBA offers low interest rates, with terms as long as 30 years.

More than 90 percent of SBA’s disaster loans are to borrowers without the
financial strength to fund their own disaster recovery without hardship,
and have an interest rate of four percent.

The SBA can only approve loans to applicants with a reasonable ability
to repay the loan and other obligations from earnings. Disaster loans
require borrowers to maintain appropriate hazard and flood insurance,
thereby reducing the need for future emergency assistance.

The SBA makes two kinds of disaster loans. Physical disaster loans are
a primary source of funding for permanent rebuilding and replacement of
uninsured damages to privately owned real estate and personal property.

This program is the only form of SBA assistance not limited to small
businesses. Physical disaster loans also help homeowners, renters,
companies of all sizes and nonprofit organizations.

Economic injury disaster loans provide necessary working capital until
normal operations resume after a physical catastrophe. The law restricts
these loans to small businesses only.


The Federal Emergency Management Agency (FEMA) is a central point of
contact for emergency planning, preparedness, mitigation, response and
recovery within the federal government. FEMA’s main mission is to provide
technical guidance, financial support, and emergency management support to
state and local government.

  • Within 24 hours after the president or a governor declares a disaster,
  • FEMA sets up a toll-free 800 number to provide information and assistance.
  • Both FEMA and the SBA open disaster application centers within four days.
Posted by on May 26, 1999