The 3 R’s of Resilience for Small Businesses
Business Continuity is coming into the mainstream as a core part of business strategy for the small business owner and small or satellite operations. Just this month, Hurricane Sandy gave a number of small business operations a big challenge with its destruction of the critical infrastructure, interruption of lifeline services and the resultant social crisis for the communities it hit. Whether you are an owner, investor, operator, supplier, employee or customer of a small business, you are a key stakeholder in that business’ business continuity management strategy. Here are some things to consider.
Resilience is the vision of business continuity. It is the capability to withstand a direct hit, like Hurricane Sandy, to the business operation through preplanned strategies to be safe, secure and to rapidly restore and recover operations. While there are many aspects and details about resiliency for the small business that can be discussed, the heart of resiliency are the 3 R’s – RTO, RPO and ROI.
RTO is the acronym for Recovery Time Objective and for the business owner/operator it basically means the time from the starting point of the disaster to the return to operations. Most business owners and operators either already know this or can determine this time objective based on their sales cycles and the delivery of products and services requirements needed to retain customers and meet obligations. The RTO is a factor of the type of business and sales methodology. For example, web based point of sales businesses have a minimal RTO tolerance. These businesses don’t want ANY interruption of any kind for their internet sales process no matter what has happened and where the disaster is. In contrast, a local car dealership, however, could tolerate an interruption in business operation for days and maybe more than a week and is dependent on the local infrastructure to get back into operation for its sales operations. RTO for the same car dealership, however, may have some business processes that must be completed within hours or days in order to complete the previous sales cycle and business requirements, such as payroll. Whatever the variables, the first is R is RTO and the small business must address this as the first step in business continuity. It is the time to get back up and running after an interruption.
RPO is the Recovery Point Objective and speaks to the point of restoration so that the business can pick up and resume operations, hopefully without a significant loss and with the capability of making up anything that was not completed. The RPO may consist of a critical path and have several points of restoration, including: data restoration, system restoration, service restoration or operational steps to which the business must have in place in order to restart. RPO establishes the requirements for restoration and here is where the detail for business continuity is outlined. Again, the RPO is a function of the operation. For example, a restaurant can pick up pretty quickly after all services are restored and a basic cleanup is performed. In contrast, a production line for time and process sensitive products may have to restart
at the beginning, with all partially completed processes discarded. Another example is the restoration of core data to be able to serve customers and the difference between the time span from the last back-up and time of failure or disaster. In this case the RPO may be determined by the last back-up. RPO sets the point of restoration of the operation for the business.
ROI is where the rubber meets the road for the small business continuity and here is where strategic thinking and decisions can be the difference between losing everything, or months of struggling to get back into business or a rapid recovery – managing through interruption back to full resumption of business. Full recovery with minimal loss is resilience and is the baseline for return on investment in business continuity. The Return on Investment in business continuity is achieved as a result of the investment of the following:
- Investment of Leadership – advanced decisions and plans
- Investment of Time – current time/value to prepare, train and test
- Investment of Relationships – strategies and ongoing processes to increase customer relationships which create loyalty and retention, as well as key employees to increase availability and efficiency during restoration
- Investment of Commitment – to the business restoring operations after an interruption, ensuring that the plans are current and ready when needed
- Investment of Contingency Purchases, Services and Funds – essential resources to support business continuity and resumption must be in place
- Investment of Continuous Improvement – always seeking better and more efficient ways of doing business which makes each core process more reliable and impact resistant, which eventually reduces the investment in retaining outdated and old processes
For the small business, these are basic investments done every day by business owners, managers, and employees. With an emphasis on business continuity and restoration, the ROI is realized as factors of time, value, expenses and avoided losses. There are many strategies in this ROI, including; back-up for the back-ups, alternative supply chain and logistics, crossed trained employees, social media for communication to customers and the market, regular test and evaluation of contingencies, and even such strategies as temporary support and services from competitors – just to name a few. All of these strategies add value and protect assets during an interruption of business. Every business operation has these and more unique strategies that they need to have in place – ready to roll out if – well we should say “WHEN” disaster strikes.
To support the valuation of ROI, I always ask the small business owner, what is your greatest asset? Here are the three most often given answers:
- For an owner/operator who runs the business themselves, they will say “I am” and they believe they can restart their business themselves as they did when they originally started up. In this case, they believe they already have a “market” and all they need to do is rebuild it. I always point out the cost of start-up and that the ROI or cost/benefit for building in resilience to their current operation is always a fraction of the cost of total restart.
- For a small business operation that is managed by an Operations Manager or an owner with a management team, they will almost always say, “My team or my employees”, as they view the employees as critical to their business. For some, this is even greater than the value of customers, especially for low relationship business, such as a retail outlet. I always point out that they need to involve those employees in the business continuity plans and make sure that they can get the employees back to work as quickly as possible with little or no interruption in their paychecks. Yes, paying people is a core part of business continuity and reducing losses. This is in contrast to many small business owners who think they will have a “savings” during the down time by not paying “inactive” employees. That’s true for the week’s financials, but that can also be the root cause of the loss of those same key employees who left to find a more considerate employer or secure income.
- For a small business that serves its customers and maintains a close relationship with them, the Owner/Manager will almost always say, “My Customers” – they are my greatest value. And here is where I work with them to find ways to retain their customer loyalty and confidence during any break in their business. There a number of good strategies, including communication, restart specials, and the provision of alternate services or products, just to name a few. A customer in hand is worth twice the cost of the new one that you have to go get to replace it.
The Return on Investment is always an eye opener for the business owners, managers and employees. The investment of one or two days of paid time in preparing business continuity plans is offset by minimizing restart time which means sooner back in business, avoided loss, and a pick up where you left off in revenue. In fact, with a good plan in place, everyone knows when the business has to come back in operation and everyone works toward that – owners, vendors, suppliers and employees. There may be other factors, such as the damage in the community that impact operations, but even so, there are strategies to deploy that keep the name of the business alive and show resumption. These strategies are best when preplanned in advance and are part of the business continuity plans.
ROI at a minimum is that retained customers and employees are twice the cost of replacement. Completed sales cycles and service/product delivery can result in no loss at all, with a pro-active business continuity plan. That’s avoided loss and that is REAL MONEY in the bottom line.
The last word I always give a business owner, manager and key groups, is that businesses do go through serious challenges and some stop altogether – even with plans place. Some things just happen, like Hurricane Sandy. The risk is high for those who fail to deliver on their promises that they will not survive in the long term, in fact, there is a greater than 50 % chance that the business will go out of business within 3 years if that business is not able to get back in operation, keep its customers happy or keep its good people. Business continuity is not something that we do only if we have the time and funding and we can never say it won’t happen to us. Business continuity is core part of building our value and keeping our place in the market.
So remember: RTO, RPO and ROI – the three R’s of Resilience – protecting the bottom line with business continuity.
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©Jan Decker 2012
Jan Decker is a consultant in crisis management and business continuity with over 25 years of professional experience helping businesses, government agencies, universities, schools, private-not-for-profit and churches/ministry groups with Business Continuity Management Systems (BCMS). For more information on BCMS, ISO 22301, crisis management plans and related topics, contact Jan Decker – cell: 253 251 2704.