February 2003
By JAMES S. ANCHIN, CPA
In view of today's ongoing threat of terrorism and a war in the Middle East, contingency planning is more important than ever. Volatile geopolitical situations aside, contractors still face business disruption from causes closer to home, particularly as more and more information is generated electronically rather than in hard copy. A glitch in the computer system, a fire, or an ex-employee with an ax to grind can all bring business operations to a halt. 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 what-if questions: What if the building is destroyed? What if the technology fails? What if your 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 should have a disaster recovery plan as well as documented information on who is going to implement it and the time and costs involved in returning the business to normal operating conditions after a disruption.
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 of thumb is to keep the 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 too often is 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 at least once a year. Reviewing and re-thinking is one of the easiest tasks related to contingency planning, but one that is frequently neglected.
Although each contractor should develop its backup plan based on its individual situation, these are the basic elements in the contingency planning template. Spending time and money in developing a program that may 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.