How to keep a natural disaster from destroying your business
When a natural disaster strikes, your business could suffer loss of revenue and even catastrophic end of business events.
You may be given a warning about a possible disaster, such as a hurricane that is picking up speed. Other times, you may find yourself dealing with an earthquake, tornado, or some other type of unexpected disaster.
When disaster strikes, you need to have a solid plan of action in place so you can deal with the effects and position your company for success.
Business Insider sat down with Dun & Bradstreet SVP and Chief Data Scientist Anthony Scriffignano to discuss how CFOs can prepare for and deal with unexpected disasters. Dun & Bradstreet provides finance solutions (credit and risk management), operations solutions (supply chain management) and sales and marketing solutions to more than 90% of the Fortune 500.
Understand how to chase total risk.
According to Scriffignano, during or before a natural disaster a competent CFO will draw two columns: total risk and total opportunity. Those columns will be used to highlight the needs of a company on paper.
The total risk category is the first phase that CFOs need to investigate during disaster analysis. The first questions are simple: Where are we, and where is the hurricane? Where are the business' facilities? Where are the most critical places for us, such as docks and storage facilities?" Scriffignano explains. "Next, businesses need to focus on how a natural disaster will affect the things they need to do. For example, if you are an insurance company focused on the shipping industry, you may look at the potential risks for all contracts you have in that market."
Figure out how to chase total opportunity.
"The other side is the total opportunity side. One may need to consider, Is there a hurricane coming close to one of my competitors?" Scriffignano says. "Or maybe the hurricane is coming to an area where a business was thinking of expanding. Maybe I'm in the construction or insurance industry and I can help people in need."
Going down the supply chain, a CFO's choices become more complicated very quickly. You need to look past your immediate suppliers to the suppliers of your suppliers or the critical customers of your suppliers, "anything that might impact your suppliers' ability to serve you."
Scriffignano suggests starting an open dialogue with your important suppliers before disaster strikes. Be sure to ask open-ended questions," for example, can you tell me steps you are taking to prepare for a hurricane? Make sure you are asking the right kind of questions, such as, "Is there anything we can do from a monetary, humanitarian, social good, or green point of view? It can be anything; it doesn't have to just be about money."
Here's the big supply questions CFOs need to ask.
Can your business pre-order stock? Is it possible to stage inventory? Scriffignano says those questions, along with information about consignment inventory and alternative supply chains, are very important for a company's ability to keep operating when disaster strikes.
"You need to question how a natural disaster will affect the customers of your vendors, the vendors of your customers, the vendors of your vendors, and the customers of your customers," Scriffignano notes. "Those second- and third-order implications let us know if something is about to happen. Holistically you want to do as much of that analysis as you can."
Understand the importance of A.B.C. analysis and customer interaction.
Dun & Bradstreet uses a clever A.B.C. analysis structure. Businesses of all sizes can use the same methodology by breaking down concerns into the following categories: most risky, less risky, and least concerned about.
Scriffignano believes even small businesses can take advantage of an A.B.C. analysis approach. He warns, "The first thing I would say is don't boil the ocean, there is no way to do this perfectly."
He gives the example of a small custom motorcycle builder. If their manufacturing inventory is delayed because of a storm, then they need to ask some important questions, such as, "If two to three of my orders get impacted for two to three of my biggest customers, what's that going to do to cash flow? Can I make payroll? Maybe those two to three engines that were disrupted are the most critical risk impact."
Once you have successfully identified your biggest risks you can take remedial action. "Have a conversation with your customers to show customer centricity and sensitize them to what can happen given the situation," he says. "Understand the impact it will have on the customer. You are showing them that you understand that this is more than just about making motorcycles."
Disaster mitigation needs to be solved by a team.
A CFO can't solve the problems associated with a major disaster on their own. "You have to get all the counter parties at the table. If you try to come up with your plan and let the tech part of the organization come up with their plan, and so on, we know how that is going to end - it's going to be mutually repellent particles held together by a copper core," Scriffignano explains.
"You want to get the smallest and right group of people at the table," he says. "It's not a nice-to-have; it's not a distraction from the real work we have to do. This is part of the real work, so inform the right part of the coalition to make it real."
Use different methodologies based on the circumstances.
"Have a methodology in place. Different types of events will have different planning. You can't treat a hurricane like political unrest. Name the beast, understand it, make sure you have people who are bringing the right type of info to the room about the event as it unfolds."
As an example, progressive decomposition may be used as one form of methodology. This is the concept in which you take a very large unsolvable problem and you keep breaking it down into smaller problems until you can solve some aspects of the problem.
Build work plans around questions.
Scriffignano says we have to ask questions like, "what is the objective of the stream of work" and "how would we measure the efficacy of our plan." There are some techniques we can borrow from engineering, he says, like the concept of necessary and sufficient. "Is everything we are doing necessary? If not, stop. And if we take everything collectively and assume we do it well, is it going to be sufficient? If not, some gap analysis can tell us what else we need to do."
Engage in year-round planning.
Disaster planning isn't an in-the-moment decision. Scriffignano reminds business owners that they need to look at the data currently available to them and try to connect all the data in meaningful ways.
"We have a Tier N concept: We look at the first, second, and third tier of a supply chain to see what the impact might be. We play it out with different scenarios and parameters. We do a lot of data science to look forward and backward in time to examine data longitudinally," he says.
Once that analysis is completed his team asks the question, "What are the key attributes of the data that would inform this event?"
Scriffignano says, "Let's say we are in January and we are looking at hurricane season, what are some of the things we have seen in the past? Businesses stopping operations or slowing down? Then there is this second order where everybody reacts and that reaction causes echoes in the data."
"A financial crisis is a type of disaster," he continues. "Businesses go out of business before the disaster. Businesses shift from collecting old debt and not finding new customers."
Final thoughts?
Have a plan, write it down, show it to other people, ask them to tell you what is wrong with it. Have an approach that says, this is what we are going to do, this is why we are going to do it. This is why we think it is better than anything else we can do, and this is how we know if we did it right. [[are these your words or his?]]