Natural Disasters and Businesses

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Table of Contents

Introduction
Impacts of Natural Disasters
Lack of Preparedness as a Major Cause of Failure for Businesses
Conclusion
References

Introduction

Natural disasters are taking businesses by surprise every year, and causing loss of millions of money in terms of damages and interruption of businesses activities and procedures. The impact of loss as a result of natural disasters can be perceived with focus on the examples of natural disasters that have occurred in the past with disruption and destruction of business activities.

Interruption of business and business procedures manifest as destruction of the systems which support businesses such as computers and computer systems such as internet connectivity. Business records and information which play a very vital role in business practices are disrupted or destroyed, meaning that there can never be an analysis of business activities, which would be vital in improving business. Some businesses have necessitated closers once they have lost vital information following natural disasters.

The worst thing about natural disasters is that they cannot be avoided as sometimes they occur so abrupt. Small businesses have largely been affected by disruption as a result of natural disasters because they are limited in preparedness, have limited resources to keep in check such dangers, and probably limited knowhow on the avoidance of natural disasters or the problems involved (The Institute for Business & Home Safety, n.d.; The Institute for Business & Home Safety, 2007).

They rely on less sophisticated means of avoiding losses, for example, less sophisticated computer networks. The general impact on the U.S. business economy can be premeditated especially with the consideration that the nation has about 27 million small businesses (Hp & Score, n.d.). The most problematic issue is on preparedness on the occurrence of natural disasters because they cannot be avoided. The impact of being not prepared is not only felt on property loss but also manifests as job losses since businesses provide jobs for citizens, and economic disruptions.

Businesses rely on other activities, facilities and services such as provision of power, and once these are disrupted, they lead to losses also. Even among the businesses which survive tragedies, there is continued struggle to operate. This points out to the need for businesses to formulate not only a disaster preparedness program but also a plan for quick recovery. No business around the world is proof to catastrophe, ranging from wildfires, building fires, tornadoes, floods, hurricanes, among others.

Impacts of Natural Disasters

Experts agree that a company will never fully recover financially, if it encounters a computer outage which lasts for more than 10 days. In fact, such a tragedy will cause 50% of businesses to be out of operation within five years (Toiga, 1989). Major disasters have an overwhelming impact on businesses as about 25% of businesses will never reopen following a major disaster (The Institute for Business & Home Safety, n.d.). Most of small firms (70%) will stop operating within a year, once a major data loss tragedy has faced them. A research by HP & Score reveals the dangers involved in businesses once problems related to natural disasters occurred. 43% of companies facing a catastrophic data loss never reopened, while 51% closed doors within 2 years.

The research also indicates the probability of businesses recovering from effects of natural disasters, with the probability that many (80%) of those which do not recover within one month likely to stop operations (Bernstein, 1998). The importance of having a business continuity plan can be meditated by the fact that the research revealed that a whopping 75% of those with none, failed within three years (Blythe, 2002). 43% of those businesses without an emergency plan never reopen following a disaster, while only 29% were in operation two years after the disasters stuck (The Hartford Financial Services Group, n.d.).

The ability of natural disasters to disrupt any business cuts across damaging business property of the business affected, to damaging facilities such as roads, airports, markets, power industries, railways and others, which play a vital role in continuity of business. For example, businesses came to a halt when they can no longer receive raw materials as before, when natural disasters hit. In addition, losses may be encountered when the products cannot be transported to the required destinations as a result of disruption of transport systems. Many businesses rely on others to sell their commodities and receive supplies and thus disruptions of activities of one company or business may lead to disruption of another business.

In addition, there are those firms heavily relying on labor and services of local or international citizens. Interruption of business operations may manifest as shortage of labor or those services necessary for production of goods and services, when natural disasters lead to displacement of families and killing of citizens-even when the business has not been physically damaged. Therefore, the magnitude of disruption or destruction of business once a natural disaster has happened is hard to estimate.

For example, Hurricane Katrina caused deaths, over a week power outage, and spoilt many resources. This was experienced with others, namely, Hurricanes Jeanne, Ivan, Frances and Charley. The real loss in economy or business as a result of a natural disaster may even be hard to exactly calculate.

The direct economic loss of the United States has multiplied five folds (up to $629) following natural disasters in the past four decades according to The International Red Cross. The economic loss in the U.S. related to natural disasters increased from $65 billion in 2003 to $145 billion in 2004 (cited in HP & Score, n.d.). According to the aforementioned authors, hurricanes and tropical storms experienced in the United States resulted to the greatest catastrophic losses (47.5% of the total catastrophic losses),

“followed by tornado losses (24.5 percent), winter storms (7.8 percent), terrorism (7.7 percent), earthquakes and other geologic events (6.7 percent), wind/hail/flood (2.8 percent) and fire (2.3 percent). Civil disorders, water damage and utility service disruption combined, represented less than 1 percent” (Hartwig; cited in HP & Score, n.d.).

Weather-related natural disasters caused a loss amounting or exceeding $1 billion for over 27 years according to NOAA’S National Climatic Data Center (Neal & Tom, 2007; cited in HP & Score, n.d.).

Lack of Preparedness as a Major Cause of Failure for Businesses

While the occurrence of natural disasters can never be avoided, preparedness can be termed as the best way to avoid the damages or to reduce the damages and disruptions associated with natural disasters. Preparedness is however a wide topic as it involves consideration of what a natural disaster could cause on business, and the application of strategies aimed at counteracting the effects. In addition, natural disasters are not of the same type; they could be fires, earthquakes, hurricanes and floods among others-and even each of them may require specific attention to prepare against, because they may be of different magnitudes.

Preparedness includes safe storage of information such as customer data, production records, pay rolls, tax and accounting information in a secure fireproof location. In addition, companies should consider storing information away from their sites.

Research has found out a low concern for safe data storage against natural disasters. An interactive survey (Harris) which involved 597 computer users found out that even when computer users raised concern on loosing important digital data, only one in four of them could back up digital files. A low number would back up data (37%) lesser than once per month while no backing up of data was done by 9% of the participants. Either ignorance or negligence or both, was a causative in failing to store data safely as the survey found out that 22% of participants seldom backed up information, although the practice was on their to-do list.

Conclusion

In conclusion, natural disasters can never be avoided because their occurrence is unpredictable in nature. In addition, they can occur anywhere anytime, and their magnitude is even not able to predict. There seems to be wisdom in the preparedness on how to recover and how to face disasters in order to ensure business continuity. Few businesses prepare for disasters as has been evidenced above. There is evidence that a lot of losses have been encountered following natural disasters and that this has led to loss in the country’s economy.

Small businesses lack enough resources and probably the knowhow to prepare for disasters and therefore are the mostly affected in case of a natural disaster. The impact of natural disasters range from disruption of business activities such as destruction of business premises and property, loss of life and therefore labor, interruption of important services such as transport and others provided by other firms, e.t.c.

References

Bernstein, J. (1998). Bernstein Crisis Management. LLC in Director, Vol.51 (11), p.44.

Blythe, B. (2002). Crisis Management International in Blindsided: A Manager’s Guide to Catastrophic Incidents in the Workplace. Web.

Hartwig, R. (2007). Financial and Market Impacts of Hurricanes on Property/Casualty Insurers Past, Present & Future. National Hurricane Conference, New Orleans, LA.

HP, & Score. (n.d.). Impacts on U.S. small business of natural & man-made disasters. Score. Web.

Neal, L. & Tom, R. (2007). Tracking and Evaluating U.S. Billion Dollar Weather Disasters, 1980-2005. National Climatic Data Center, NOAA, Asheville, North Carolina. Web.

The Institute for Business & Home Safety. (n.d.). Open For Business. The Institute for Business & Home Safety (IBHS). Web.

The Hartford Financial Services Group. (n.d.). The Hartford’s Guide to Emergency Preparedness Planning. The Hartford Financial Services Group. J.J. Keller & Associates.

The Institute for Business & Home Safety. (n.d.). Open For Business. The Institute for Business & Home Safety. Op Cit, p. 1, 10.

The Institute for Business & Home Safety. (2007). Getting Back To Business–A Guide for the Small Business Owner Following Disaster. The Institute for Business & Home Safety. Web.

Toiga, J. (1989). Disaster Recovery Planning: Managing Risk and Catastrophe in Information Systems. Yourdon Press.

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