Construction professionals are familiar with problems occurring in the course of projects. In fact, it may be accurate to say that it is uncommon for a crew to complete a project without at least a few challenges arising. Consequently, construction pros tend to be experts at adapting to changing conditions and addressing difficulties effectively.
That skill is developed, in part, through on-the-job “training.” An issue occurs, project teams consider their options, and they choose a solution and implement it. However, it also helps to have the right tools and processes in place to help keep a construction company moving forward in the face of difficult circumstances. One of these tools is called a business continuity plan, and every construction business should have one.
Business Continuity Plan: A Definition
A business continuity plan is a document that details how a construction company will continue to operate during and after a disruptive event. Weather emergencies and natural disasters often come to mind as having the potential to affect a construction company’s operations. However, they are not the only issues that can disrupt projects and cause financial harm to a business.
An important lesson learned during the COVID-19 pandemic is how challenging things like supply chain disruptions and labor shortages can be. Like all businesses today, construction businesses must also contend with a rapidly increasing risk of cyberattacks.
A business continuity plan takes into account a range of business considerations, like these:
Personnel. How will the business address labor shortages? Can others cover for workers who are out due to illness or injury? If so, to what extent? What are the options for addressing labor shortages with resources outside the company?
Facilities. How will the company respond if, for example, a storm damages its headquarters? Can operations be shifted to another company-owned property? To a nearby rented space? What is involved in moving to another location, considering time, effort and expense? What steps can the company take to protect its property from severe weather?
Equipment. What company equipment is most important and most vulnerable to various risks? How can it best be protected? Where can replacement equipment be obtained rapidly and cost-effectively? Could workflows be modified to enable projects to continue if critical equipment items are damaged or destroyed?
Technology. What can the company do to protect items like computers and high-tech devices in the face of different types of threats? Where and how quickly can replacement devices be acquired?
Data. What types of information does the company maintain? Does it include sensitive client or employee information? What measures are in place to prevent unauthorized access to that data? How will the company replace the data if it is damaged or destroyed?
These are, of course, just some of the operational areas that a construction company should address and questions it should ask in crafting its business continuity plan. And it is important for the people creating the plan to consider it both from operational and revenue perspectives.
“While a business continuity plan makes it much easier for a construction company to recover from a disruptive event, that isn’t its only benefit,” says Peter Shelley, president at biBERK, a Berkshire Hathaway Direct company. “Every construction business owner is aware that time is money. The faster a company can resume normal operations, the less of a negative financial impact an event will have.”
Business Continuity and Disaster Recovery
Fortunately, most construction businesses affected by some type of emergency will recover eventually, even if they don’t have a business continuity plan. However, taking an ad hoc approach to business continuity can be detrimental to a construction company in multiple ways:
It delays recovery in most cases. Precious hours, days or weeks can be lost as an unprepared company tries to determine how best to handle a disruptive event.
It may result in the unrecoverable loss of assets. When an adverse event disrupts a business, “time is of the essence.” The more quickly a company can respond to a disruptive event, the less damage it tends to cause.
It can damage the company’s reputation. Clients cannot blame a construction company for things outside its control. However, its response to those things is within its power, and word gets around if a business fails to respond promptly and effectively to challenges.
It may lead to lost business opportunities. Prospective clients tend to assess a construction company’s reliability. That includes their ability to get work done both in “normal” times and when incidents occur that can potentially disrupt projects.
Construction businesses with a comprehensive and detailed business continuity plan significantly reduce their risk of being affected by these issues. In addition, creating a plan gives clients, business partners and other stakeholders confidence that any emergencies that arise will be dealt with promptly and thoroughly.
Seven Steps for Crafting a Business Continuity Plan
The steps for developing a business continuity plan may vary depending on the type of construction a company does, the threats it faces and other factors. But in general, people tasked with crafting the plan should take these steps:
Document known business risks. Most companies can be affected by issues like weather, labor shortages due to illness, etc. However, there may be additional challenges that are unique to the organization. The plan should note all known risks.
Identify key business areas and critical functions. The functional groups within an organization tend to face different risks and require different recovery processes. For example, a construction company’s bookkeeper will not have the same concerns as its project managers or work crews.
Document functional dependencies. It is essential to consider how one group’s work—and its post-incident recovery—affects that of others. For example, a cyberattack not only affects office workers but can also delay the generation of paychecks, which affects everyone.
Determine the acceptable downtime for each business area. This may be zero for some groups. For others, a client contract or the requirements of a previously identified functional dependency may dictate the allowable downtime. For instance, on a project with a tight turnaround, there may be little to no flexibility.
Define the steps needed to maintain operations by business area and risk. How the accounting department recovers from a cyberattack will differ from how the manufacturing group recovers from a roof collapse.
Prioritize the actions to be taken. Ideally, a business would have all the resources it needs to address all the action items on its business continuity plan promptly. However, that may not always be the case. Consequently, it is important to rank tasks based on how critical they are for getting the business operating safely again.
Ensure that applicable business insurance policies are in force. In most instances, there are expenses associated with business continuity and recovery, and small business insurance may cover those costs. For example, a business owners policy or BOP (also called property and liability insurance) can pay to repair storm damage to a construction company’s owned or leased building. It can also cover costs to get the business operational again and pay for lost income. Cyber insurance coverage, which a company can add to a BOP, general liability or professional liability policy, can pay for costs related to the loss of data in a system breach. And a commercial auto policy can protect a business from the liability associated with the use of company-owned or leased vehicles, plus cover damage to those vehicles.
Maintaining a Business Continuity Plan
A company’s operations, and consequently its business risks, are likely to change over time. As part of developing a business continuity plan, organizations should also define a process for reviewing the plan regularly and amending it as needed. This includes reassessing their business insurance coverage.
“The first task in business continuity management is developing a carefully considered plan,” says Shelley. “A second, equally important task is for companies to ensure that their plan is kept current. Having an outdated business continuity plan can be nearly as damaging as having no plan at all. Businesses certainly do not want to advise employees to take the wrong actions in response to business disruption. And, it only takes a short time to reread a business continuity plan every six months or annually. Companies can even review the plan in some type of recurring meeting where decision-makers from the affected areas are already scheduled to attend.”
Disruptive events are outside a company’s control. However, businesses can control their response to those events and the degree to which their operations are affected. Organizations that develop a solid business continuity plan prepare themselves to respond quickly and effectively should a crisis occur.
Hope for the Best. Prepare for the Worst.
Unfortunately, taking the stance that “It will probably never happen to us” is riskier every year. So-called 100-year floods and storms seem to be occurring at much shorter intervals. Cybercrime is on the rise. And businesses and individuals appear to be much quicker to file a lawsuit over actual or alleged mistakes by construction companies and are receiving larger payments in those lawsuits.
Companies should not be discouraged by this, but they should be concerned—particularly if they have not taken the time to create a business continuity plan. On the other hand, companies that have developed a thorough plan can stay focused on projects knowing that if a crisis arises, they are prepared to deal with it effectively.
Rakesh Gupta is chief operating officer at biBERK, part of Warren Buffett’s Berkshire Hathaway company. biBERK specializes in commercial insurance for small businesses. In his role, Gupta focuses on simplifying the insurance buying experience using technology and process innovations that make it easier for small business owners to get the coverage they need.
