Leadership

Why companies should plan for a disaster before it happens

Focus on protecting success, disaster recovery expert Jennifer Elder says.
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· 5 min read

Unfortunately, natural disasters have been in the headlines recently. The earthquakes in Turkey and Syria, flooding in California and wildfires in Chile have all had staggering human and financial tolls.

And the risk of natural disaster is only rising, according to the World Economic Forum’s Global Risk Report 2023. It ranks natural disasters as the second-most severe short-term global risk, and the third-most severe long-term global risk.

Businesses can’t ignore the risk of natural disaster and need to make disaster planning a key part of their business, Jennifer Elder, CEO of the Sustainable CFO and co-author of Faster Disaster Recovery, told CFO Brew.

CFO Brew spoke with Elder about how finance can lead the way on disaster planning, the common mistakes that organizations make, and why you should plan ahead for the natural disaster that hasn’t happened yet.

This interview has been lightly edited for length and clarity.

With all of the uncertainty and disruption in the macroeconomic and geopolitical environment, how have you seen organizations prioritizing natural disaster recovery?

This is a running battle, in that organizations tend not to; disaster recovery planning is not on anybody’s hot topic…until it happens to you. So sadly, people don’t prioritize it until it’s a problem.

But we’re dealing with such a volatile environment right now. It’s really important—and I think especially for finance professionals—to do some scenario planning and say, “What could throw our world completely out of whack?” It’s really not thinking about the particular event; it’s thinking about the impact of the event.

Where does responsibility for disaster recovery planning lie in an organization?

It should lie in every department. But I think finance professionals should take the lead because we are experts at risk.

Risk management isn’t really about being negative. It’s about being prepared and saying, “How do I mitigate what could ruin my life?” Whether it’s an ice storm, a hurricane, a flood—it’s not preparing for that particular event. It’s preparing for the impact of that event. It’s preparing for what would happen if you couldn’t get your most critical supplies. What’s the impact that you have to figure out how to address?

What mindset should finance professionals have when approaching this kind of disaster planning?

First, we need to shift people out of the “We’re being negative” mindset and that “This will never happen to us.” How many people thought Covid would shut us down for three years? How many people thought a war in Ukraine would absolutely turn utility bills upside down? You never would have thought about that, and so we have to think that all things are possible.

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What you’re really trying to do is protect your success. It’s not that you’re thinking negatively. It’s just as much about moving forward as it is stopping you from going backward. It’s really important for every organization to think about, “What is the most important element to our success and how do I protect that?”

How do you recommend organizations prioritize which things to prepare for in a world where any situation could be possible?

The easiest way of doing it is a process called a risk heat map. On one axis, you have cost or impact—how expensive would this be? On the other axis, you have likelihood. Things that are highly likely and would hurt badly are the ones you absolutely have to have a plan for.

When you look at all of the items that you would have put in the high end, there are going to be similarities in the impact. And that’s ultimately what you want to address: “How would I deal with that impact?” I don’t care where the impact comes from… [It] doesn’t matter where it comes from; it’s “What do I do?”

What are some of the common mistakes that you see organizations making when it comes to disaster planning?

The most common mistake is not planning and then the second-worst mistake is not coordinating your response.

We’ve all been in a situation where it hits the fan and we can’t help but have a little bit of panic or anxiety. And people will say and do things that do not make the situation better. So you need to have point people. That's why I say it’s everybody’s responsibility because finance may be in Kuala Lumpur and we have a manufacturing facility in Germany. Well, if there’s an explosion in Germany, you need a point person on site.

We all get stupid when there is a disaster. There is emotion involved. And when you’re panicking, you don’t think clearly. I think people overestimate our ability to think clearly. So you and I can sit here and think about a disaster. Well, we’re in clear thinking mode, so it doesn’t seem like it’s a big deal. But then the adrenaline starts running, and you’re not thinking.

I prefer simple over complicated and, rather than thinking about a particular event, think about the impact. When it comes to disaster response, it’s thinking about, “What would stop you from making money?”…And the second question is, “Who do you go to when there’s a problem?”—DA

News built for finance pros

CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.