Business continuity plan of a company

First, a company needs to be resilient. That means key business functions are designed within the context of potential disasters. The business continuity team runs a risk assessment against each function for weaknesses and susceptibilities, then establishes protections against them. This supports ongoing risk management policies.

Second, stakeholders prioritize functions and determine which need to be brought online first. Disaster recovery is a key factor, and the faster functions can return to an operational state, the less likely the organization is to sustain lasting damage. IT stakeholders set disaster recovery time goals and develop an actionable disaster recovery plan. After mission-critical functions return to working order, team members work down the list of priority functions, utilizing third-party support to implement recovery strategies as needed.

Third, organizations require a contingency plan with branching paths that describe chains of command, stakeholder responsibilities, and any necessary technical knowledge necessary for emergency management within established disaster scenarios. Finally, an optimized business continuity plan includes a recovery time objective (RTO) to establish the speed at which business operations must be recovered, and a business impact analysis (BIA) to determine how successful recovery efforts were. Likewise, a disaster report shows stakeholders how the disaster recovery planning process can improve in the future.

With these three elements, an organization can weather crises, assess damage quickly, and recover as soon as possible. It's also important to understand that a business continuity plan is a living document that must be updated regularly as the organization adopts new technologies and processes. As organizations grow to scale, they adopt new solutions and infrastructures; these must be accounted for in the plan, or disaster recovery challenges could become augmented by unexpected bottlenecks.

The third step is determining and implementing the risk management measures. There are two main ones we recommend—the right insurance policies and robust systems and processes.

Using universal life insurance policies

One simple way that many companies use to manage keyman risks is using universal life insurance policies. These policies are taken out by the company on the keyman; however the company remains the beneficiary. Such policies can then directly compensate the company for any direct or indirect costs incurred in case of any tragedy befalling the keyperson.

When looking for insurance policies to mitigate keyman risks, it is important to ensure that beneficiaries can be transferred at will. This gives the business the flexibility to use a single policy to cover multiple people that may fill a key role. For instance, if one keyperson retires, that same policy can be used to cover their replacement.

The death cover amount is another factor. For most businesses, the smaller sums available for the more standard mass-market policies is simply insufficient. This is what makes universal life insurance—where the death benefit can be structured to reach more—the most appropriate tool for this situation. For instance, with the scenario given in the Manulife Heirloom VI product brochure, a single upfront premium payment of US$7 million could potentially buy a policy with as much as US$20 million in death benefits.

Of course, choosing a suitable policy amount is crucial. Both going too high or too low can result in a lot of cost inefficiencies, which means taking the time and effort to properly quantify the risks as in Step 2 is vital.

Setting up robust systems and processes

Many small businesses scoff at larger corporates as being slow and bureaucratic, weighed down by the sheer number of systems and processes they have in place. And there is no doubt more than a kernel of truth in that perspective. But there is a reason that these companies have all these in place—they are essential to not only manage the complexities that come with greater organisational size but to mitigate risks just like keyman risks.

Smaller and family-owned business would do well to take this to heart. While universal life insurance policies are an effective tool for managing keyman risk, they work best as part of a larger framework of systems and processes. In this context, these should focus on ways to transfer or spread out the value that the keymen bring among other personnel.

There are too many variations between companies for us to recommend any specific systems and processes—they should be unique for each business, and there is no ‘one size fits all’ solution. Unlike going out and purchasing a universal life insurance policy, putting these in place will be more difficult. But it is a necessary step, and businesses who have yet to implement these should start as soon as possible.

Business Continuity Planning Protects the Company’s Flanks from the Unexpected

When times are good and business is doing well, a business continuity plan can sometimes slip down the priority list. This makes sense—after all, it doesn’t generate any revenue, and in fact, often costs both time and money to implement. But when the unexpected happens and a such a plan is needed, it may already be too late.

Insurance policies, particularly universal life insurance policies such as Manulife’s Signature Solutions, are an essential part of a sound business continuity plan. If you’re interested to learn more about how our solutions can serve as part of your business continuity plan, speak to one of our financial consultants today.

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