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October 2003: Minimizing Business Interruption

When most companies think of a disaster recovery program, the first issue that comes to mind is EDP operations. Do we have backup data or hot sites available? Is replacement equipment readily available?

However, there are several other areas of concern from a Business Interruption (BI) standpoint that must be addressed that are not necessarily related to EDP operations. Those include building replacement, production equipment availability and raw material vendors, to name a few.

Historically, the common causes of BI losses are related to power/utility interruptions, fire, windstorm/flood damage to buildings, damage to EDP equipment/data and earthquake. What follows are recommendations that reference key areas of concern with respect to events that can have an impact on BI.

FIRE & GENERAL PLANT CONDITIONS

A fire can have an enormous impact on the ability to produce your product. Not only will production equipment be damaged, but also major building damage can result. Considering the continuity of combustibles throughout most facilities, an uncontrolled fire can theoretically involve the entire building.

Careful attention should be paid to the Loss Control Report prepared by your property insurance carrier, insurance broker or consultant. If there are any recommendations that address inadequate sprinkler protection or a poor water supply, they should be corrected promptly. Human Element programs such as monthly fire inspections and the formation of a Plant Emergency Organization should also be implemented.

PREVENTIVE MAINTENANCE

Preventive Maintenance (PM) of production equipment is essential for continued, uninterrupted production. All major equipment should be on a regular PM program based on the manufactures recommended service intervals.

Spare parts for critical production equipment should be kept on hand or at least locate vendors that can deliver key parts with a minimum of lead-time.

PM programs should also apply to support equipment such as air compressors, heating and cooling equipment (both process and comfort), forklift trucks, shipping and receiving equipment, pumps and related items.

PRODUCTION EQUIPMENT BOTTLENECKS

It should be determined what production machine is the most critical to production. In other words, if this one piece of equipment were damaged, production will cease.

Once identified, the level of necessary fire protection should be determined. In addition, the PM program should be up to date and key spare parts should be available.

The manufacturer should be contacted to determine the necessary lead-time if the unit was completely damaged.

RAW MATERIALS

Obviously, without raw materials, production would halt. Ideally, multiple vendors should be available and you should be aware of the necessary lead times for the various raw materials in use.

If a particular product is available from only one vendor, thought should be given to keeping more in-house or stored at an off-site location near your production building.

UTILITIES

Electrical: All transformers and main switchgear should in infrared tested at least once every three years. If the local utility is considered unreliable, thought should be given to installing an emergency generator or have procedures in place to rent a generator from a local supplier within a few hours.

Natural Gas: All external and internal gas piping should be protected from physical damage and periodic inspections to check for leaks or pipe damage should be performed. The necessary safety valves should be installed and in good working order.

Water: As with natural gas piping, all water lines should be protected from physical damage and periodic inspections conducted.

COMPUTER CONTROLLED EQUIPMENT

If you utilize production equipment that is computer controlled, back up data and/or computer equipment should be kept on hand to avoid a production interruption.

WEATHER EVENTS

Flood: It should be determined if your location is in a floor prone area. If so, a Flood Emergency Plan should be in effect.

Windstorm: Strong winds can damage roof flashing and roof covering, which can result in water leaking into the building. Periodic inspections should be performed on general building conditions.

MISCELLANEOUS EVENTS

In addition to the above, procedures should be established to deal with the following events. Concern is not only for production but also for life safety.

• Bomb Threats

• Civil Disturbance

• Emergency Evacuation

SUMMARY

Fire and General Plant Conditions:

• All Human Element programs should be maintained. These programs include sprinkler system maintenance in accordance with NFPA 25 as well as general housekeeping and proper storage and handling of flammable and combustible liquids.

• To prevent an uncontrolled fire, all recommendations relating to fire suppression should be addressed promptly.

Preventive Maintenance:

• It should be verified that all major production equipment is being maintained according to the manufactures recommendations.

• This should also apply to boilers, pumps, piping, valves and other key production equipment.

Production Equipment Bottlenecks:

• A review should be conducted to determine the key equipment that could result in considerable down time if it were damaged.

Raw Materials:

• Attention should be placed on the possibility of having multiple vendors or at least being aware of lead-time for critical raw materials.

Utilities:

• Plans should be developed to deal with service interruption.

Computer Controlled Equipment:

• Any production equipment controlled by a computer should be reviewed to determine if backup data/equipment is available.

Weather Events:

• An emergency action plan for all weather events should be up to date. The plan should include the names of local contractors in the event that prompt building repairs are needed or sprinkler system service is required.

Miscellaneous Events:

• These items are events that are normally out of your control. There are several publications available that address action plans to safeguard your plant and your employees. You might consider contacting the local authorities for guidance.

If you are in need of assistance in determining your Business Interruption exposures, contact Risk Logic and we can conduct a survey of your facility to help limit the loss potential from the above-mentioned perils.