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Perspective
February 06, 1995 01:00 AM

BEING PREPARED CAN MITIGATE DISASTER

Esward Raszinski
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    A lmost half of the businesses hit by a disaster never recover. And while many business owners would rather take the risk than be prepared, we are seeing an increasing number of plastics companies taking practical steps to prevent or prepare for disaster, rather than face insurmountable losses.

    Many businesses that develop a disaster-recovery plan effectively address the immediate response to the emergency. However, there are other aspects of a recovery plan, such as what to do before catastrophe hits and how to resume business afterward, that are also critical to survival. A good disaster-recovery plan and the proper insurance to support it are inseparable.

    If a loss occurs and your facility and key equipment are damaged, you must quickly find temporary space and equipment or pay a competitor to manufacture your product. A smart disaster-recovery plan will get you there faster.

    Document all assets and implement a strategy to eliminate hazardous situations. Arrange to have manufacturing functions and materials on- and off-site. design fact-finding and disaster preparation teams, including an emergency planning coordinator, inventory-control team, damage assessment team and an emergency action team.

    Plastics operations are property-intensive. Placing an accurate value on property and equipment is a critical step in disaster-recovery planning. There are several ways to value your property, including actual cash value; replacement value, which considers the cost to buy property performing the same functions without depreciation; and functional replacement value, which references the amount paid to replace obsolete equip-ment with state-of-the-art models. Your insurance agent or broker can provide you with detailed information on valuation options.

    Every day you spend looking for a new building and equipment after a disaster is a day of lost income. Do the research now to determine who can replace your equipment. Another consideration: Although you can't predict with certainty which customers will reorder after a disaster, determine now the critical patterns, molds and dies that would need to be replaced in order to serve them. Anticipate problems by taking inventory, storing patterns, molds and dies off-site when feasible, and purchasing adequate insurance.

    In determining the replacement cost for building, remember replacement cost is the cost to rebuild, not the real-estate market value. Figure in demolition expenses and the cost of complying with local building codes and ordinances.

    When valuing stock, consider each stage in the process: raw stock; stock in process; and finished stock. Finished stock must be valued based on net selling price if you want to capture the profit in the event it is damaged or destroyed.

    Business income and extra expense insurance can be critical while you're rebuilding. Business income reimburses you for loss of future net income and your continuing normal expenses. Extra expense reimburses you for extraordinary expense you incur in an effort to continue your operations.

    Business income and extra expense coverages can help you cover the costs of relocation to a temporary facility, including moving, equipment installation and rental, building rent, utilities, overtime and even ongoing insurance costs.

    Some firms may feel they don't have the resources or time to develop a disaster-recovery plan. However, its importance to the viability of your business cannot be overstated. Your insurance company, attorney and accountant all can be good sources of advice.

    We're all busy running our businesses, but it's important to invest some time in creating a loss-control and disaster plan. Because if disaster strikes and you're unprepared, you may have all the time in the world.

    Radzinski is assistant vice president of Chubb & Son Inc. in Warren, N.J.

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