September 2004
By JAMES S. ANCHIN, CPA
The just-concluded Republican National Convention (RNC) posed a good lesson for every business ownerÑand particularly for those in town where the GOP was camped out. Because of heightened security in and around Madison Square Garden, many businesses experienced a week of annoying and costly disruptions. Business disruptions, whether man-made or natural, will always exist and most are out of our control. The RNC is just one example.
Contractors can face potential business disruptions from many causes, particularly as more information is generated electronically rather than in hard copy format. A glitch in a computer system, a fire, or an ex-employee with an ax to grind can all bring business operations to a standstill. Whether it's disaster or disruption that strikes, there's no doubt that a sound contingency plan can help your company react quickly, and continue to serve customers while missing as few beats as possible.
Developing a sound plan begins with asking the "what if" questions. What if the building you work out of is destroyed? What if the technology fails? What if the premises are inaccessible for a week or two? Contractors should review their exposure to these types of risks and plan accordingly. While larger companies may already have a contingency planning team in place, all companies, regardless of size, should have a disaster recovery plan and documented information on who is going to implement it. Your plan should also include the time and costs involved in returning your business to normal operating conditions after a disruption takes place.
Where do you turn if your offices are damaged? Large contractors may already have a "hot site" equipped with ready-to-go computer systems and other business necessities. All contractors should have a back-up plan that designates alternate quarters and a hotline number, or an individual to update employees on when and where to report for work.
Preservation of computerized data should be a top priority, particularly for contractors whose day-to-day operations depend on computerized cost, schedule, project control and accounting functions. At the heart of the contingency plan should be a method for backing up computer data. The number one rule is to keep all backup data off the premises. Remarkably, some business owners go to great lengths to duplicate data, and then keep the duplicate in the file cabinetÑobviously worthless if the building is destroyed, damaged or otherwise off limits. Rectifying this situation is as easy as keeping backup at home or in a safe deposit box.
A tougher challenge is to know how often to back up the data. For contractors who are continually entering data to reflect changing project parameters, the answer is to back up every time new information is added. If your computer system isn't equipped with a zip drive, that can be a daunting task. For backing up data on a disk or CD, experts recommend using a three-tiered "generational" system in which back up tapes are used in order and then rotated. For instance, in the first week, back up your data with disk 1; in the second week back it up with disk 2, and in the third week, with disk 3. When it comes to the fourth week, disk 1 is used for backing up the data and begins the rotation of using the oldest disk for backing up the latest data. You then have three generations of back up data. If the system fails, simply revert to the latest pre-glitch disk.
There is other information to back up too. Contractors may keep electronic address books of clients, customers, vendors and employeesÑthese should be printed out periodically and stored off site. Copies should be made of legal documents, leases, insurance policies, corporate records; the originals can be stored off the premises and the copies kept on file in the office. Filing insurance claims and obtaining replacement equipment will go easier when you have the quantity, model and serial number of all fixed assets from chairs to computers.
Short of actual catastrophe, you'll only discover whether your contingency plan is viable if you test it. Testing is a valuable tool but, unfortunately, one that is often overlooked. Earmark some down time for a dry run and simulate a disaster or mini-disruption to determine whether the plan is adequate or needs some fine-tuning.
One last piece of the contingency planning process is to update the plan regularly, at least once a year. Reviewing and rethinking is one of the easiest tasks related to contingency planning, but one that is frequently neglected.
Although each contractor should develop his or her backup plan based on their individual situation, these are the basic elements in the contingency planning template. Spending the time and money to develop a program that will hopefully never have to be put to use may not seem like a priority. Unfortunately, history indicates otherwise.
About the author: Mr. Anchin is a managing partner of Anchin, Block & Anchin, LLP, a regional certified public accounting firm with offices in New York City and Westchester, that specializes in meeting the needs of contractors in the tri-state area. He can be reached at (212) 840-3456 or by e-mail at: james.anchin @anchin.com