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by Edward A. Schirick, C.P.C.U., C.I.C., C.R.M.
When we think about risk management planning, the focus is often on
people, safety plans, and emergency action plans.
One aspect of risk management that needs more attention
is how to manage and survive an interruption of
your camp's business.
Experts in the insurance industry report that most
businesses suffering a major property damage loss
fail to resume business. These failures are attributable
not to a lack of insurance but from failure to plan for the consequences
of the business interruption. What is the lesson here? Surviving a business
interruption requires buying insurance for sure, but more than that
it requires anticipation and advance planning.
Planning for an Interruption
The first step in developing a business interruption
survival plan is to assemble a team. Team members
will surely include ownership, perhaps a key board member or two, the
director, other key permanent staff, your insurance broker, your accountant
and perhaps an architect.
The next task is identifying the risks that
might cause an interruption of your camp programs.
Ask the team to identify the situations that would cause widespread,
catastrophic damage to your facilities. Examples of such risks might
include flood, earthquake, tornado, and forest fire.
Consider other
risks as well. Identify your key buildings or groups
of buildings. Would you be forced to interrupt or suspend if they were
damaged or destroyed? What are the specific risks to these buildings?
For example, the risk of fire in the dining hall
is greater because of the use of stoves, ovens,
grills, electrical appliances, and refrigeration equipment in the kitchen.
Identify other risks that don't involve
damage to your facilities. Examples of these risks
include food contamination, water contamination,
or the outbreak of a communicable disease. The
consequences of these situations can include parents
not sending or withdrawing their children or an order of closure from
the health department to reduce the public health risk.
Another risk
of interruption may develop when there is damage
to an adjacent property that forces closure of roads leading to your
property. A variation on this is a situation where an event at adjacent
premises threatens your property requiring an evacuation of your premises.
Many businesses south of the World Trade Center endured suspensions
of their businesses or failed following the September 11, 2001, attacks,
even though their buildings and property were not physically damaged
in the attack.
Develop Worst-Case Scenarios
What would you have to do
to stay in business? Consider some worst-case scenarios.
A "what happens if" this happens or that happens
approach will help you consider the possibilities.
The primary
purpose of a "what if" scenario
is to anticipate the problems and identify the
resources needed to overcome the obstacles in each
situation. For example, let's assume a temporary
suspension of operations — you are unable to open camp on time
because a fire destroys your dining hall one week
before opening day. With the cooperation of the
health department, you could bring in a portable,
temporary kitchen, and put up a tent to feed everyone
in two shifts; you lose two weeks while the debris is cleaned up, and
the site secured.
Ask, "What
are the obstacles to staying in business?" Communication
is one issue. Minimizing loss of confidence over
safety is another — this
is a public relations issue. Will some parents
decide not to send their children? Will you offer
refunds or credits toward another session? What
will you do if some parents insist on getting their
money back? Will you pay your staff during this temporary suspension
of business?
What financial resources will be at your disposal? Besides
your camp's
financial resources (cash, line of credit, etc.)
insurance will play a key role in providing financial
resources. Will your property insurance provide replacement cost
benefits? To what extent will your business income
and extra expense insurance cover the costs you incurred to save part
of the summer? How did you establish your limit of insurance? Did you
use a business income worksheet, or just pick a number? Did you suffer
a loss of "net income" from
this temporary suspension of camp? You may not
know immediately. Find out how your insurance company
defines "net income." You
might be surprised to learn their definition is
different than the one your accountant uses.
Other Considerations
Has
your insurance policy been extended to pick up
additional costs associated with changes in building
codes? Will you be allowed to rebuild in the same building foot print,
or will you be required to relocate? Does the current building code
allow for the same occupancy (i.e., sleeping quarters in the dining
hall), or will you be required to build two buildings? Will the local
planning board require architect's plans? Can you find a contractor
with the resources to begin construction immediately after camp is over
in August?
Another Scenario
Develop another scenario involving a forced
closure of camp. Let's assume camp
has an outbreak of norovirus at the beginning of
week four, which spreads rapidly infecting 40 percent
of the camp population overwhelming your medical
resources.
The health department is called in to
help identify the source and decontaminate. After
a couple of days with no resolution and more campers
and staff getting sick, the health department orders you to close. The
financial implications of this scenario are much greater than our previous
example, because the standard business income insurance most camps buy
does not cover losses caused by food contamination and communicable
disease.
What happens now? Do you have enough financial resources to
refund 50 percent of this year's tuition, pay your
staff, and stay current on your continuing operating
expenses until next season?
Even if you can buy some business income
insurance, which includes food contamination and
communicable disease as a cause of loss, the protection is limited.
It is unlikely any operating loss suffered in this scenario would be
covered entirely by business interruption insurance. How will you handle
this situation?
What's the Point?
It is imperative that you take the
time to think through the obstacles associated
with an interruption of your camp business and
develop a comprehensive plan to overcome them and
stay in business. Don't make the mistake of sitting
back and relying upon your insurance. As we have already discussed,
some risks may not be entirely covered, while other
risks (e.g., flood, earthquake, and mold) may not
be covered at all. Insurance is a key factor in
your survival plan, but it is not a panacea. Don't
make the mistake of assuming you're covered!
A Plan of Action
There is no "one size fits all"
solution to risk management planning. Each camp
owner or director must go through the process.
Schedule a thorough review of your camp's plan to survive a business
interruption. Put it at the top of your "to do list" this
spring. If your current risk management plan doesn't include a
business interruption survival plan, make a commitment to putting one
in place before camp opens this summer.
Business interruption is a complicated
topic, too much for one person to plan for alone.
Assemble your team. Focus on risk identification and risk control. Concentrate
on minimizing risks on the premises generally (e.g., maintain dams,
ask neighbors to do the same; keep brush away from buildings; install
roofing to resist high winds) and in key buildings (e.g., install the
latest chemical extinguishing system in the hoods, ducts, and over all
cooking surfaces in the kitchen; have electrical wiring checked by a
licensed electrician; and repair and upgrade service to reduce the risk
of electrical fires).
Consult with your insurance broker once you've
established your survival plan. Complete a business
income worksheet to establish your specific limit of insurance for business
income. Ask him/her to review the various business income insurance
options with you so you can tailor your insurance to your survival plan.
Find out how, and under what circumstances, your business interruption
insurance will respond.
Identify any gaps (risks that might not be covered
by your insurance program) and apply the risk management
process to those situations as well. Review the plan annually. Update
it as necessary. This may seem like an overwhelming process, but
believe me if you can organize and execute a plan,
it will be worth your time and effort!
Originally published in the 2009 March/April
issue of Camping Magazine.
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