Why Businesses Shrug Off Natural Disaster Threats, And How They Can Stay Vigilant

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By Russ Banham

Some people can’t help being optimistic. It’s wired into their genes. They know Mother Nature can be devastating, but they’re certain they’ll escape her occasional ill will. Bad stuff happens, they figure, to other people.

This explains, in part, why so many people buy or build homes along coastlines and in densely forested areas, where the risks of flooding and fires are substantial. Businesses are also guilty of underestimating threats. They focus more on supply chain and distribution logistics than on the negative financial impacts that business disruptions can create.

Robert Meyer, a professor of marketing and co-director of risk management at the Decision Processes Center at The Wharton School of the University of Pennsylvania, has studied this phenomenon. “People have a tendency to look myopically at the future and be forgetful of the past,” Meyer said. “They have a vivid memory that a natural disaster like a hurricane or an earthquake has occurred in past, but they forget how it feels. The emotion of the event fades rapidly. Yet it is these emotions that trigger constructive actions.”

In the aftermath of a natural catastrophe such as Hurricane Katrina or Superstorm Sandy, many individuals and businesses batten down the hatches, doing whatever the experts say they should do to reduce the impact of the next “big one.” As the years pass, however, they do less and less to reduce their vulnerability to these hazards.

The reason is human nature. Key behaviors such as denial — the process by which individuals pretend they or their businesses will be undisturbed by a disaster — affect decision-making. Although scientific data attests to a significant threat, people shrug off the possibility, collectively believing: “It won’t happen to me.”

“We see this all the time,” Meyer said. “In Galveston, in 1900, 8,000 people were killed by a hurricane. There’s a monument there to remind everyone what happened. Yet many people wish the seawall built after the catastrophe could be removed to enhance their views of the ocean. ‘The worst has passed,’ they tend to think — erroneously, of course.”Meyer chalks up this wishful thinking to evolution, positing, “If women held onto their memories of pain from childbirth, they’d never give birth twice.”

“Our memories of painful events tend to be short-lived,” he said.

Challenging The Tendency To Push Your Luck

What must be done to change such risky behaviors? Here are some thoughts to consider:

1. Business continuity is a continuous strategic concern; hence it needs to be regularly championed by the top of the organization. As Meyer points out, many businesses routinely buy flood insurance after a flood but let it lapse after a few years of no losses, when the emotional memory of the disaster fades. “After Hurricane Katrina, there was a 30 percent surge in the volume of people and businesses buying flood insurance,” Meyer said. “Within two years, the insurance numbers fell back to where they were previously.”

2. Clear messaging is required from senior executive management that a natural disaster is just another business risk that must be continuously managed. Doing nothing is not a solution, given the consequences of inaction, including loss of competitiveness, reduced market share and damaged reputation. To ensure everyone in the organization appreciates the potential financial severity of a disaster, conduct a business impact analysis identifying the potential operational and financial effects, using scenario-based testing.

3. When it’s blue skies and sunny, it’s not top of mind to dwell on what can go wrong. That’s why a written business continuity plan is crucial. The plan identifies critical and time-sensitive functions, interdependencies among these functions, how much downtime is acceptable, methods of maintaining communications when networks and systems are down, and a checklist of recovery steps to conduct in the event of a disaster. The Department of Homeland Security provides a plan template  as part of its Ready public service campaign.

4. Constant reminders of what can go wrong can make a difference. In California, for instance,the Great ShakeOut Earthquake Drills are conducted annually to remind the community what it must do to survive and recover quickly from big earthquakes. Businesses can take a page from such public-private endeavors, and conduct routine drills of different disaster scenarios to examine what’s working and what’s not.

Nobody likes Chicken Little or other doomsayers. But facts are facts: Natural disasters are inevitable. Forewarned is forearmed.

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