IT in Healthcare

Studies in information technology (IT) implementation projects indicate that up to 70 percent of software implementation projects fail in some important area, whereas, 66 percent of all these IT projects either fail outright, or take longer to install than projected. Amazing to note is that close to 98 percent of IT projects over $10 million fall short of expectations or returns.[1] In general, the main explanation for these staggering figures stem from the fact that implementing IT has become more complex in the last 45 years.

Over the next few years, the healthcare industry is expected to be one of the top two industries to leverage information technology (IT) and to recognize significant growth.[2] However, firms are often challenged with being able to successfully implement and accurately measure the benefits and profitability of these IT systems. IT users commonly face a difficult time in evaluating IT systems and in justifying their use with company senior executives.

In this article, we provide the findings of recent research on IT systems evaluation and discuss the elements of a business case so that executives can better understand such systems’ benefits and measures when evaluating and implementing the feasibility of particular IT systems. We also discuss common inherent risks that arise with these types of IT system implementation efforts.

2006-2007 Healthcare Industry Predicted Statistics

Below are a few significant statistics that the U.S. Department of Labor[3] released in a January 2006 report.

  • The healthcare industry is predicted to add nearly 3.5 million new jobs between 2002 and 2012, an increase of 30 percent.
  • From 2002 to 2012, 10 of the 20 fastest growing occupations are predicted to be concentrated in health services. These positions include medical assistants (59 percent growth), physician assistants (49 percent growth), home health aides (48 percent growth), and medical records and health information technicians (47 percent growth).
  • Projected rates of employment growth for the various segments of the industry range from 12.8 percent in hospitals, the largest and slowest-growing industry segment, to 55.8 percent in the much smaller home healthcare services.

On August 22, 2006, President George W. Bush signed an executive order concerning IT’s role in the healthcare industry. The order directly states that improving the quality and efficiency of healthcare delivery is dependent on the standardization and use of interoperable health IT. As defined by this order, interoperability is “the ability to communicate and exchange data accurately, effectively, securely, and consistently with different information technology systems, software applications, and networks in various settings and to exchange data such that clinical or operational purpose and meaning of that data are preserved and unaltered.”[4]

Healthcare providers and payers of healthcare can now tangibly foresee substantial investment in health IT in the coming years. Central to the growth potential in the healthcare industry is the adoption of and reliance on IT. IT plays a multifaceted role in the healthcare industry. According to a PricewaterhouseCoopers[5] report that forecasts the top 10 issues in the healthcare industry, three these issues were directly related to the implementation, adoption, and use of IT. Those three issues include: 1) turning to IT to reduce medical errors and to improve tracking and reporting of safety and quality standards; 2) using IT to enable healthcare providers to improve their ability to capture, store, retrieve, and report quality information, and 3) improving the technology infrastructure to assist in claims processing, create electronic medical records, reduce medical errors, and track performance.

With the enormous investments in IT, one of the most important questions that business managers must answer is “How should we approach the identification and measurement of IT investment payoffs?” The evaluation of IT investments and payoffs in the industry can have both financial (e.g., staff hours saved and reduction of redundant IT) and non-financial outcomes (e.g., customer satisfaction and quality of service). Below, we provide a simple framework that companies can use to evaluate, justify, and measure the payoffs of their IT investments. This framework provides the general elements of a business case and highlights factors to consider while evaluating healthcare IT systems. Although the framework is provided here in terms relative to the healthcare profession, it is also applicable to organizations in general. Managers can also derive practical implications from this framework.





Photo: Miguel Ugalde





Elements of a Business Case


Firm stakeholders who invest in IT to aid firm performance are often concerned because the benefits of the system are frequently difficult to measure. Ultimately, the return on investment (ROI) has become the deciding factor on whether or not to proceed with the investment. However, achieving a positive ROI is not a simple accomplishment. With every potential return come the inherent risks associated with investing. The initial investment, in this case investing capital into health IT, is neither the beginning nor the end of the process to interoperability optimization.[6] This type of investment is similar to installing an enterprise resource planning (ERP) system and must be planned for accordingly. Much like ERP systems, interoperable IT directly impinges upon most areas of an organization and can influence practically every aspect of healthcare delivery. Hence, effective interoperable IT implementation requires a conscious, concerted effort featuring a focused approach that leadership wholeheartedly endorses.

A general approach to transforming a paper-based healthcare delivery system to a digital healthcare delivery system is to organize implementation into five interrelated stages: Discovery, Planning, Procurement, Implementation, and Support.[7]

Discovery Stage

The discovery stage is an in-depth analysis of the state of the external and internal healthcare environments. The external environment should examine what is happening outside of the organization, such as evaluating the healthcare, IT, and other relevant industries. The internal environment analysis should assess the current state of the medical facility, vendors, or any other stakeholder institutions. Major issues to consider are the existing barriers to interoperable health IT, such as the role of leadership at the federal and institutional levels, available investment capital, earning stakeholder buy-in, identification of legal issues, and facilitation of cultural change. For a more detailed analysis of these issues and others, please refer to the report “Ending the Document Game: Connecting and Transforming Your Healthcare through Information Technology.”[8]

Planning Stage

The objectives of the planning stage are to determine the following: 1) whether or not the current infrastructure will sustain the proposed investment; 2) the amount of IT investment that is appropriate for the organization, and 3) the future of interoperable IT investments. The technology may prove useful in the short-term, but it cannot be expected to support the increasingly heavy demands of healthcare delivery in the long-term. In order to address the infrastructure issue, the current U.S. administration has set a goal that “all Americans should have affordable access to broadband technology by 2007.”[9]

Once the proper infrastructure is in place, the scope of IT investment should be defined. From the determined project scope, medical facilities will need to create a business case to support the planned IT investment. What follows is a skeleton framework for a business case involving health IT investment based on relevant factors outlined in “Beyond Bankable Dollars: Establishing a Business Case for Improving Health Care,” from The Commonwealth Fund.[10]

Under the financial component, stakeholders should consider implementation costs, savings, and ROI.

  • Implementation Costs: Calculate direct expenses such as raw materials (i.e. software, hardware, etc.) as well as costs of training and education. Indirect costs such as lost revenues due to reduced productivity when initiating new processes should also be tracked when possible and worthwhile.
  • Savings: Retain cost savings from the new processes or invest in other areas of the institution. Additionally, the savings area includes avoided costs, such as expenditures for keeping the status quo system and not changing anything. Lastly, factor newly generated revenue into the overall savings.
  • ROI: Using data from the first two categories, calculate ROI. In analyzing the return, it is common that during the earlier years of roll-out, the return may be low or even negative. Such return results are typically due to the front-end expense of the initial investment. Consequently, decision making should be based on long-term analysis such as the ROI at the end of the roll-out period and the annual ROI thereafter. Table 1 below illustrates the two ROIs of investing in an interoperable system by stakeholders based on a 10-year roll-out timeline.
Table 1: ROI for stakeholder groups
in millions
(2003 USD)
Cumulative ROI during roll-out period Annual ROI after implementation
Laboratories 85,050 13,100
Payers 137,310 21,600
Pharmacies 5,631 1,290
Providers 55,587 33,500
Public Health 583 93.6
Radiology Centers 52,839 8,170
National $ 337,000 $ 77,753.6
Per group or hospital Cumulative ROI during roll-out period Annual ROI after implementation
Small Group $ 9.03 $ 1.13
Medium Group 18.09 2.30
Large Group 47.92 5.73
Small Hospital 2.18 0.38
Medium Hospital 5.78 1.01
Large Hospital 17.72 2.81
Jumbo Hospital 45.65 6.86
*Source: “The Value of Healthcare Information Exchange and Interoperability.” CITL, 2004

Under the strategy component, healthcare stakeholders should consider how IT investment affects business decisions, the organization’s image/appearance (a.k.a. brand equity), and strategic positioning.

  • Business Decisions: External influences such as the political climate and public opinion can affect an organization’s overall business strategy. Within the scope of health IT, a neighboring hospital may raise the bar by rolling out a comprehensive initiative to reduce medical errors and adverse drug effects through investment in interoperability.

    Both the desire to invest in health IT and actual investment in IT are based on a question asked by most stakeholders: “What financial incentives does my organization have for investing in IT?” Reimbursement and incentive programs are not new to the healthcare industry; however, their makeup is evolving from paying for volume or service to paying for quality care. Better known as Pay-for-Performance programs, these incentives base rewards on action items such as IT investment as well as on improvements in clinical measures and patient satisfaction.[11]

    Incentives can help defray some of the investment expense for providers choosing to move towards interoperability. For stakeholders such as single-physician practices and small clinics that may have difficulty freeing up money to make substantial investments, incentives may be the only feasible path available. The market has already taken note of providers’ needs for financial assistance and the associated value in relation to health IT. Some payers are offering providers incentives to adopt these types of technologies with the understanding that providing healthcare will become safer and cheaper to provide through implementation.[12]

  • Brand Equity: Basically, investing in interoperable health IT can boost an institution’s image and reputation. Lowering operating costs, improving processes and making fewer medical errors should be attractive to insurance agencies, employers, and other payers.
  • Strategic Positioning: Whatever the IT investment, it will have implications regarding the future direction and positioning of the organization. This new position should be directly linked to the scope of the investment determined in the Planning Stage.

Under the third component of the business case, which focuses on the internal consequences to the organization, healthcare stakeholders should assess how IT investment will correlate with organizational values and affect the institution’s unique culture.

  • Organizational values: While creating and establishing values may be difficult and even painful to accomplish, if the process is successful, employees should be able to take genuine pride in their work. Total buy-in at all levels should eliminate the chance for cynical attitudes that may result from witnessing hypocrisy within the organization.[13] Aligning investments that support an organization’s mission and values can support adopting a business case.
  • Culture: Within each organization exists a culture that grows organically, is naturally unique, and possesses an infinite number of idiosyncrasies. Consequently, determining how to invest and implement IT is not as easy as imitating your neighbor. Integrating IT into an organization and its culture can be accomplished through establishing a unified identity among stakeholders who pursue common goals by sharing knowledge in a standardized technological infrastructure.[14] In other words, stakeholders should have one voice, one vision, one mission, and one direction when moving towards interoperability.

    Leadership is usually what binds the solidarity and common purposes necessary for IT implementation. Physicians increasingly feel the burdens associated with being leaders, however, they often do not have the appropriate skills to assume the leadership role. Teaching physicians leadership skills that are essential in other high-performing service industries will help physicians through the transformation process.[15] Developing an “emotional intelligence” helps create leaders within an organization who can stimulate an environment of trust among employees, who are then in turn motivated to share the common vision.[16]

    Management should also note the need for an internal “communication campaign,” which must educate the appropriate employees on integrating the new IT with providing improved quality care. Like the new proposal that promotes enhancing curricula by teaching the benefits and uses of health IT, these same lessons should be taught in-house to all providers. Having the technological capabilities is like seeing only the background of a beautiful painting; using such capabilities the right way (best practices) is what creates all the elements of a masterpiece.

After finalizing the business case, executive approval and allocation of the necessary resources are the next steps in the Planning stage. Although these steps may seem to be a formality, support from the top including the board of directors can show the organization’s dedication and can create a sense of urgency.[17] After all, one cannot move forward without a green light.





Photo: Tomasz Kobosz





Procurement Stage

Based on what is discovered and assessed in the Discovery and Planning stages, the leadership team may acquire a technology that meets the appropriate standards and that should eventually address customization issues farther down the road.[18] Since technology is not a barrier to interoperability, the market can adjust to the industry’s demands.

The leadership team should be selected based on the individual team members’ abilities to include internal representatives from each area of the medical facility in which IT will function. Experts will be necessary to work through issues that arise from the choice and customization processes.[19] By integrating the experts into this process, buy-in from the various departments as well as from the staff can be easier to earn.

These team members can then identify the processes that should be modified and amended. This process is sometimes coupled with a concept called Lean Manufacturing. For example, the Indiana Health Information Exchange has invested in an interoperable system that allows doctors to log onto a network and order specific information on a patient. Then the request is processed, and data is sent to the physician’s account. The overall process change cuts down administrative work time as well as doctor wait time.[20]

Other responsibilities of the leadership team include setting appropriate milestones and promoting stakeholder buy-in, which means that all parties who receive value from the implementation can personalize the health IT investment. Earning trust through communicating the shared vision helps guide the stakeholders through the transition period.[21]

Implementation Stage

The Implementation stage is typically the longest stage, since the technology and process changes are finally being implemented. Activities within this stage should be relatively manageable because of the organization’s planning and meticulous preparation. Visible leadership and appropriate leadership styles can be critical to the overall implementation’s success or failure. The leadership team’s technical command of project management should help organize the overall roll-out.

Support Stage

After the Implementation stage, the organization should be able to realize tangible benefits from the IT investment. Highlighting early successes can also provide quick relevance to encourage further process change and health IT investments. Another way to identify benefits is to establish metrics that track and report the implementation’s effects on targeted operations. Through the wisdom gained from the various reports, best practices should be adopted that range from providing quality medical services to the implementation process and project management.

Preliminarily, go-live and continual training should be a major component of the support stage. New roles and required skills will evolve from the health IT and process changes.[22] Even though the costs of education and support may be difficult to assess, continuous efforts in these areas are critical to the success of IT implementation and to achieving the optimal method for organizational transformation.[23]

Conclusion

We have documented that the healthcare industry is projected to show significant progress in using IT to improve data management and to streamline processes. This article acknowledges the difficulties that businesses are experiencing in measuring, evaluating, and justifying IT investments. In the long run, stakeholders should receive substantial financial benefit from interoperable health IT investment. However, most important is to improve the quality care and health of patients. This framework can also be applied to the evaluation of other IT investments within your organization.


[1] The Economist.com. Oct 28, 2004. http://www.emediawire.com/releases/2005/2/prweb208636.htm.

[2] Hoffman, T. “Brief: Government, Health Care IT Spending Expected to Grow in ’03,” Computerworld, January 22, 2003.

[3] U.S. Department of Labor, High Growth Industry Profile, January 25, 2006.

[4] Bush, George W. “Executive Order: Promoting Quality and Efficient Health Care in Federal Government Administered or Sponsored Health Care Programs,” 22 August 2006.

[5] http://www.prweb.com/releases/2006/1/inktomi330892.php, (no longer accessible) “PricewaterhouseCoopers Forecasts Top 10 Issues for the Health Care Industry in 2006.”

[6] The Lewin Group, “Health Information Technology Leadership Panel: Final Report,” 10 March 2005.

[7] http://www.army.mil/aeioo/tm/index.htm (no longer accessible) retrieved 19 July 2005.This framework resembles the Transformation Management Guide Map from the Army Enterprise Integration Oversight Office.

[8] Commission on Systemic Interoperability. http://endingthedocumentgame.gov/, “Ending the Document Game: Connecting and Transforming Your Healthcare Through Information Technology,” August 2005.

[9] George Bush, George, 26 April 2006,”Broadband Rights-of-Way Memorandum,” Source: http://www.whitehouse.gov/news/releases/2004/04/20040426-2.html.

[10] Bailit, Michael and Mary B. Dyer. 2004. “Beyond Bankable Dollars: Establishing a Business Case for Improving Health Care.” The Commonwealth Fund, September.

[11] Bailit and Dyer. 2004.

[12] Pan, E. et al. 2003. “The Value of Computerized Provider Order Entry in Ambulatory Settings.” CITL, March.

[13] Lencioni, Patrick. 2002. “Make Your Values Mean Something.” Harvard Business Review, 80(7): 113-7.

[14] Groshal, Sumantra, and Lynda Gratton. 2002. “Integrating the Enterprise.” MIT Sloan Management Review, 44 (1): 31-38.

[15] Prather, Stephen E., and David N. Jones. 2003. “Physician Leadership: Influence on Practice-Based Learning and Improvement.” The Journal of Continuing Education in the Health Professions, 23: S63-S72.

[16] Goleman, Daniel. 1998. “What Makes a Leader?” Harvard Business Review, 82(1): 82-91.

[17] PricewaterhouseCoopers. 2005. Reactive to Adaptive: Transforming Hospitals with Digital Technology.

[18] Ross, Jeanne. “Creating a Strategic IT Architecture: Learning in Stages,” MIS Quarterly Executive, March 2003.

[19] National Committee on Vital and Health Statistics (NCVHS). 15 November 2001. “Information for Health: A Strategy for Building the National Health Information Infrastructure.”

[20] Murphy, Tom. 6 September 2004.”Information Exchange Prepares for Pilot Testing.” Indianapolis Business Journal.

[21] Kouzes, James M., and Barry Z. Posner. The Leadership Challenge. Jossey-Bass; 3rd edition, 2003.

[22] Menachemi, Nir, and Robert G. Brooks. 2005. Exploring the Return on Investment Associated with Health Information Technologies: Florida State University.

[23] Medicare Payment Advisory Commission. Report to the Congress: New Approaches in Medicare. Washington, 2004.

2014 Volume 17 Issue 2

2014 Volume 17 Issue 1

2013 Volume 16 Issue 3

2013 Volume 16 Issue 2

2013 Volume 16 Issue 1

2012 Volume 15 Issue 3

2012 Volume 15 Issue 2

2012 Volume 15 Issue 1

2011 Volume 14 Issue 4

2011 Volume 14 Issue 3

2011 Volume 14 Issue 2

2011 Volume 14 Issue 1

2010 Volume 13 Issue 4

2010 Volume 13 Issue 3

2010 Volume 13 Issue 2

2010 Volume 13 Issue 1

2009 Volume 12 Issue 4

2009 Volume 12 Issue 3

2009 Volume 12 Issue 2

2009 Volume 12 Issue 1

2008 Volume 11 Issue 4

2008 Volume 11 Issue 3

2008 Volume 11 Issue 2

2008 Volume 11 Issue 1

2007 Volume 10 Issue 4

2007 Volume 10 Issue 3

2007 Volume 10 Issue 2

2007 Volume 10 Issue 1

2006 Volume 9 Issue 4

2006 Volume 9 Issue 3

2006 Volume 9 Issue 2

2006 Volume 9 Issue 1

2005 Volume 8 Issue 4

2005 Volume 8 Issue 3

2005 Volume 8 Issue 2

2005 Volume 8 Issue 1

2004 Volume 7 Issue 3

2004 Volume 7 Issue 2

2004 Volume 7 Issue 1

2003 Volume 6 Issue 4

2003 Volume 6 Issue 3

2003 Volume 6 Issue 2

2003 Volume 6 Issue 1

2002 Volume 5 Issue 4

2002 Volume 5 Issue 3

2002 Volume 5 Issue 2

2002 Volume 5 Issue 1

2001 Volume 4 Issue 4

2001 Volume 4 Issue 3

2001 Volume 4 Issue 2

2001 Volume 4 Issue 1

2000 Volume 3 Issue 4

2000 Volume 3 Issue 3

2000 Volume 3 Issue 2

2000 Volume 3 Issue 1

1999 Volume 2 Issue 4

1999 Volume 2 Issue 3

1999 Volume 2 Issue 2

1999 Volume 2 Issue 1

1998 Volume 1 Issue 3

1998 Volume 1 Issue 2

1998 Volume 1 Issue 1

Business Survival Skills

In the wake of the extraordinarily destructive 2005 Gulf Coast hurricane season (roughly from June to November), U.S. businesses are now more aware of the wide variety of perils they may be exposed to on a daily basis. These risks can be related to economic, technological, political, or even biological forces. Some such risks may be controllable, while others are not. Consider the impact that events as unrelated as a global epidemic, a spike in exchange rates, a war, labor strikes, a computer virus, crime waves, or an earthquake could have on any given business or industry. Not only does the possibility of such perils impact companies directly, but the increased speed of economic activity and response to such events also make ever more relevant the risks borne by business partners and strategic allies.

The proliferation and variety of worldwide digital media in use has changed the definition of a “local disaster,” if there truly is such a phenomenon.[1] As managers witness the unexpected, they become more aware of the extent of their vulnerability to factors outside their control. Awareness is a good thing, as long as it does not lead to overreaction or paralysis in decision making. We know that potential disasters receive far more attention after they occur even though the probability that the event will happen again is relatively remote.[2]

In a business setting, it is key for an organization to prepare and plan for any of a number of foreseeable unexpected events that the organization may face. Three important steps of the preparedness process include assessing potential risks (see table at the end of this article), developing survival mechanisms and responding quickly to a given disaster.

Some estimates suggest that 80 percent of companies worldwide are not well prepared in the event of a pandemic type of an event or a natural disaster.[3] Businesses can learn lessons from those who have proven their abilities to prepare for and respond to events out of their control. This article draws on wisdom from Gulf Coast survivors, businesses and individuals alike. Their foresight and insight provide a framework that can be used to better prepare for the unknown. Below are some suggestions that correlate the homeowner’s preparedness to preparing businesses for surviving disasters.

Developing Survival Mechanisms

Board up windows [Secure adequate insurance]. Managers can learn from homeowners who build an effective first line of defense. Many coastal families have perfected the ability to board up their windows at a moment’s notice. Knowing the danger of hurricane force winds, they store a set of boards uniquely fitted to their windows. The purpose of this exercise is to shield against the possibility of broken glass and the vulnerabilities of a home or business exposed to the elements. Businesses should carefully consider the protection that they have in place, particularly insurance, to guard against such unforeseen circumstances.

Statistics reveal that 20 percent of businesses that close after a catastrophe never reopen.[4] Insurance is an absolute necessity for protecting a business from exposure to financial ruin. Business Interruption Insurance is particularly key. It can provide coverage for things such as renting a temporary location and paying employees during a shutdown. While property insurance covers the physical loss a company suffers as a result of an unforeseen event, business interruption insurance can cover a company for the financial loss of being out of business for an extended period of time. As with all insurance, policies should be examined carefully for the extent of coverage, and even more importantly, for exclusions.





Photo: Rodolfo Clix





Secure a water supply [Maintain, update inventories and lists of suppliers]. Business owners must consider how their daily operations are hydrated, and once again, they can learn from coastal residents. During the summer months in the Gulf Coast, one can often find a stockpile of empty containers such as milk cartons or empty 2-liter bottles stashed away in hurricane-ready homes. Although a homeowner plans to dispose of the containers at the conclusion of whatever “disaster season” is typical in a given area, if a natural disaster does pose a threat to the integrity of the water supply, such a container stockpile will be invaluable for storing as much fresh water as possible.

Just as individuals often assume that water will always be available at the turn of a faucet, it is also easy for businesses to take supplier and distribution networks for granted. As the trend toward just-in-time inventories continues to be more prevalent, any disruption in the replenishment pipeline could result in large costs to a business in lost sales and idle capacity. Small businesses may take an even harder hit if a single supplier, distributor, or customer is crucial to their continued existence. The analogy breaks down somewhat due to the fact that businesses often cannot “stock up” on these emergency relationships for future use. Nevertheless, it is important to know what alternatives exist and to be prepared to access them quickly. Accordingly, for many businesses it makes financial sense to maintain a diverse portfolio of suppliers. This is a way to reduce the power that suppliers may have over a company’s financial future.[5]

Plan for evacuation [Prepare a business continuity plan]. Gulf Coast residents know that when an approaching storm makes it absolutely necessary to leave town, it is crucial to have a plan of action that will enable employees to vacate intelligently and without delay. Seasoned evacuees know whom they are responsible for, where they are going, and what supplies are necessary to sustain them for a given period of time. They know how to secure their property and to make provisions for their eventual return in case of evacuation. Businesses must also seek ways to maintain calm among staff and customers in the face of disaster by having a sound disaster plan that is ready for execution. Such a plan is critical, regardless of how small or large the number of people and resources a company is responsible for protecting.

The plan should be communicated and updated regularly to ensure that it addresses each of the most important functions of the respective business. Employees should be aware of the appropriate actions to take and must know their individual responsibilities. It is equally important to be self-sustaining in circumstances that imperil valuables beyond the physical facilities of the company. The plan should basically do the following:

  1. Identify the resources and information that are most important;
  2. Specify how such information will be accessed;
  3. Determine how communication will take place between the organization and its employees, customers, and key stakeholders after an evacuation takes place.

Any number of forces may cause the abandonment of business as usual, but a well thought-out plan will help business personnel escape with the resources necessary to insure the survival of the business until its normal routine can be resumed.[6]





Photo: Wanderlei Talib





Stock up on batteries [Maintain sustainable communication and power access]. Businesses may find themselves in great peril if they have not taken the necessary precautions to maintain sustainable access to communication and power. Months after the advent of Hurricane Katrina, an evening drive through some of the most popular neighborhoods in the city of New Orleans reveals streets that are eerily dark. While Hurricane Katrina was an extraordinarily destructive event, it is important to plan for the possibility of a complete infrastructure failure in which conveniences we have grown to rely on such as Internet, television, power and phone lines become unavailable, perhaps for an extended period of time. In order to sustain a basic level of information and safety, residents in disaster prone regions know that the simple presence of battery powered radios and flashlights can go a long way to calm fears in times of uncertainty.

This survival skill becomes particularly crucial when one considers the growing percentage of business processes that rely on communication-based transactions. The Internet can provide a safety net of sorts, since it is not location dependent, but data on servers is still vulnerable. Along with customer data, accounts receivable and payable data are especially valuable and should be backed up daily.

Given the high value that businesses now place on their data, data loss incidents can often result in bankruptcy.[7] In order to be prepared, it is necessary to have a full understanding of how critical data moves in and out of the organization and what options are available to sustain this flow. In addition to making an onsite back-up with an external hard drive or other media, more businesses are protecting their crucial processes by diversifying access to data and maintaining off-site records.[8] Any organization will benefit by determining alternative ways to continue operations in the absence of phone, power, transportation, database functionality, e-mail capabilities, or access to physical facilities.





Photo: Michael Anderson





Keep a full tank of gas [Plan for financial viability]. A business must prepare a financial reserve for use in a given disaster. Once again, an analogy can be made with hurricane victims. Television images captured the least prepared evacuees waiting in line for gasoline. For the prepared, fueling up is a priority when evacuation conditions become a possibility. Even if residents intend to weather the disaster at home, they should make a plan to have on hand an available supply of gasoline after the emergency stages of the disaster passes.

Businesses worldwide had to bear the financial burden of the Gulf Coast hurricanes manifested in increased energy and raw material costs, decreased retail sales, construction shortages, and decreased industrial production and foreign trade. In the aggregate, the impact of Hurricane Katrina reduced national economic growth in the second half of 2005 by between .5 and 1 percent.[9] It is important to have a financial and economic survival plan that will fund the running of a business even when unexpected costs arise. Having sufficient working capital and even developing a contingency plan to liquidate assets quickly, in addition to having some sort of “rainy day fund” can provide a business a “financial lifeboat” in times of trouble.

Don’t overreact to weather reports [Avoid mismanagement of risk]. Another way to state this survival skill: don’t buy a boat to park in the front yard or your business’ parking lot. Developing a set of survival skills is critical, but it is also important to realize the human tendency to mismanage risk.[10] Often in the aftermath of an unusual catastrophic event, the risk-awareness gauge can swing to the extreme. Too much attention to risk avoidance may cause more harm than it prevents. Some unintended consequences include unnecessary fear, irrational responses, overreacting to low risks, distraction from primary tasks, undue burden on resources, accumulating too much working capital, emotional biases in decision making ability, and too much dependence on risk-hedging instruments. An astute manager finds and maintains a healthy balance between conducting daily operations and preparing for unusual circumstances.

Prepare to respond quickly [Develop a quick disaster response plan]. Responding quickly is the final step in the process of surviving a disaster. Events in the United States over the past few years—perhaps starting with the 9/11 attacks—have stimulated a sharp rise in the national focus on contingency planning in contrast to the previous long period when the geo-political environment appeared to be calmer. Some countries have reacted by requiring risk assessments in financial statements, including detailed analyses of potential risks, potential costs and assigned responsibility.[11] A growing awareness now exists regarding the possibility of compounded impacts from multiple or layered disasters. It appears that prior to 9/11, many companies had shelved their contingency plans for too long and needed motivation for updating their disaster preparedness plans.

Home Depot’s response to Hurricane Katrina provides a good example of how a company’s disaster plan can help not only a company, but also the customers it serves. Home Depot was among the first businesses to reopen in the post-hurricane days. The company’s risk management plan had been determined well ahead of time and helped Home Depot to get the personnel, supplies, and infrastructure in place to service threatened stores before and after the hurricane hit. Four days before the storm arrived, procedures were underway to ensure that each store was adequately secured. While a regional center in Atlanta coordinated Home Depot’s efforts, electrical engineers and maintenance teams were ready to deploy teams to the affected areas as soon as the zone was open. The result was that 23 stores reopened the day following the storm, and all but four were operating within a week. This illustrates how a business that prepares well and responds quickly can recover from a bad situation.[12]

IBM serves as another example of a company that has planned well. On any given day, nearly 40 percent of IBM workers do not report to an IBM facility, and through a web-based collaborative environment that IBM has built, business activities may not miss a beat if everyone worked from home.[13] This forward thinking on the part of IBM could be contrasted with numerous companies that continue policies that prohibit telecommuting.

Conclusion

Businesses must develop plans that are feasible and that protect their most valuable assets. It is important to recognize that any disaster will be costly and that it can be difficult to allocate money in preparation for infrequent events. However, a cost-benefit analysis that takes into account the expected probability of an event will shed some light on the extent to which a company should prepare. Companies should consider location-specific risks and those that may affect key partnerships. Many disasters are foreseeable, and organizations can benefit from the collective wisdom of other organizations that have survived disasters.

Managers should be realistic about the costs of their emergency plans and ensure that finances, staffing and other resources will be available to enact the plan. Companies that follow these steps will be prepared to act in the midst of chaos and to help lead the community in recovery. It is important to remember that a catastrophe by its very nature is unexpected and to realize that it can also be overwhelming. The best preparation for a cataclysmic event is to develop a disaster preparedness plan such as that we have outlined. Remember to include in it a commitment to lending your fellow human beings a helping hand. Some disasters are too big to handle alone.

Assessing Potential Risks
What are your vulnerable areas? What are you doing to protect them?
Facilities
Inventory
Supply chain
Staff (theft)
Investments
Energy
Capital
Technology & Communication Networks
Legal
Operational
Reputational
Infrastructure
Health
Facilities
Inventory

[1] Smutniak, John. (2004). “Living Dangerously,” Economist, 22 Jan.: 3-5.

[2] Fox, Justin. (2005). “Taking our Chances: A Meditation on Risk,” Fortune.
3 Oct.

[3] “Biz Unprepared for Pandemic.” (2005). Red Herring, 21 December. (http://www.redherring.com/Article.aspx?a=14970)

[4] Bushouse, Kathy. (2006). “Business-loss insurance can protect you during disruptions, but it often has gaps,” South-Florida Sun Sentinel, 20 Feb.

[5] Porter, Michael. (1998). Competitive Strategy: Techniques for Analyzing Industries
and Competitors
, (New York: The Free Press).

[6] Austin, Robert & Darby, Christopher. (2003). “The Myth of Secure Computing” Harvard Business Review, June 2003:12-126.

[7] Smith, David. (2003). “The Cost of Lost Data,” Graziadio Business Report, 6 (3), http://gbr.pepperdine.edu/033/dataloss.html.

[8] Austin, Robert & Darby, Christopher. (2003). “The Myth of Secure Computing,” Harvard Business Review, June:12-126.

[9] Cashell, Brian & Labonte, Marc. (2005). “The Macroeconomic Effects of
Hurricane Katrina,” Congressional Research Service Report
for Congress
, 13 Sept. http://fpc.state.gov/documents/organization/53572.pdf.

[10] Smutniak, John. (2004). “Living Dangerously,” Economist, 22 Jan.: 3-5.

[11] “Be Prepared.” (2004). Economist, 22 Jan.: 12-15.

[12] Fox, Justin. (2005). “Taking our Chances: A Meditation on Risk,” Fortune.
3 Oct.

[13] “Biz Unprepared for Pandemic.” (2005). Red Herring, 21 December, (http://www.redherring.com/Article.aspx?a=14970).

2014 Volume 17 Issue 2

2014 Volume 17 Issue 1

2013 Volume 16 Issue 3

2013 Volume 16 Issue 2

2013 Volume 16 Issue 1

2012 Volume 15 Issue 3

2012 Volume 15 Issue 2

2012 Volume 15 Issue 1

2011 Volume 14 Issue 4

2011 Volume 14 Issue 3

2011 Volume 14 Issue 2

2011 Volume 14 Issue 1

2010 Volume 13 Issue 4

2010 Volume 13 Issue 3

2010 Volume 13 Issue 2

2010 Volume 13 Issue 1

2009 Volume 12 Issue 4

2009 Volume 12 Issue 3

2009 Volume 12 Issue 2

2009 Volume 12 Issue 1

2008 Volume 11 Issue 4

2008 Volume 11 Issue 3

2008 Volume 11 Issue 2

2008 Volume 11 Issue 1

2007 Volume 10 Issue 4

2007 Volume 10 Issue 3

2007 Volume 10 Issue 2

2007 Volume 10 Issue 1

2006 Volume 9 Issue 4

2006 Volume 9 Issue 3

2006 Volume 9 Issue 2

2006 Volume 9 Issue 1

2005 Volume 8 Issue 4

2005 Volume 8 Issue 3

2005 Volume 8 Issue 2

2005 Volume 8 Issue 1

2004 Volume 7 Issue 3

2004 Volume 7 Issue 2

2004 Volume 7 Issue 1

2003 Volume 6 Issue 4

2003 Volume 6 Issue 3

2003 Volume 6 Issue 2

2003 Volume 6 Issue 1

2002 Volume 5 Issue 4

2002 Volume 5 Issue 3

2002 Volume 5 Issue 2

2002 Volume 5 Issue 1

2001 Volume 4 Issue 4

2001 Volume 4 Issue 3

2001 Volume 4 Issue 2

2001 Volume 4 Issue 1

2000 Volume 3 Issue 4

2000 Volume 3 Issue 3

2000 Volume 3 Issue 2

2000 Volume 3 Issue 1

1999 Volume 2 Issue 4

1999 Volume 2 Issue 3

1999 Volume 2 Issue 2

1999 Volume 2 Issue 1

1998 Volume 1 Issue 3

1998 Volume 1 Issue 2

1998 Volume 1 Issue 1