Tuesday’s rare Virginia earthquake is a good reminder to check your disaster plans.
The earthquake that hit Virginia Tuesday is good reminder to check your disaster recovery plans. The rule of thumb of course is to “test and test often.” This rule is by far the most reiterated advice for ensuring your organization’s disaster recovery plan (DRP) will keep treasury functioning in the event of an unforeseen disruption to operations.
At a minimum, key payments need to be executed and liquidity provided to business entities. But beyond testing, being fully prepared for a crisis situation requires a three-pronged approach that covers people, data and facility. Covering each of these topics thoroughly in your DRP will help reduce havoc at the outset of an operation disruption.
All things considered, best practice dictates that companies create and implement a clear DRP – and treasury is no exception. In scoping out a plan, first look to your company’s business continuity plan (BCP), as treasury operations’ back-up arrangements should coincide and be part of the overall corporations’ blueprint.
However, treasury managers must pay special attention to financial systems that sit outside of the company’s primary ERP. That’s because critical information such as financial partners’ contact list and unique needs such as system access tokens, which may be sitting in a drawer in the office, need to be accessible. Written authorization for verbal confirmation and manual transactions need to be established prior to your bank systems not being accessible. So, are your t’s crossed and your i’s dotted?
People & Communications – The CFOs that can boast that his/her organization is two-people deep in every area – each staff member has another who was fully trained in their function – clearly knows the value of back-up for continuity purposes. But employee coverage can be quite a challenge for most other leanly staffed treasury groups (although technology is helping as it is reshaping how business is done outside the office). Some of the critical work of a DRP can be achieved by ensuring personnel is backed up and documented procedures (accessible out of the main office) and training has occurred, and employees are held accountable via written policy. Additionally, check that manual processing means are in place as backup to the more secure systems execution. This is often not the best procedure but may be your only transaction method in day one of the crisis.
Disasters do not have a clock and therefore can strike at any time. Establish a communication chain to keep personnel informed and to direct employees to an alternate site. Treasurers also have to determine if any of their staff are inaccessible due to the disaster. Being in communication with banks is also a critical element, letting providers know immediately that your operation is in a crisis mode with limited functionality.
Data Recovery – IT needs to be consulted to ensure vital elements of your Treasury management system are available and data recovery exists for reconstructing your system out of the office. Many companies have implemented or at least considered the implementation of a data replication product at a remote site, and moved at least part of their recovery methods from tape to remote data replication and/or disc-based systems.
According to the Gartner Group, 75 percent of organizations will use a combination of data replication and tape technology for recovery of systems/data in the future. The driver is the inability to meet agreements and “shrinking backup window.” A treasury system that manages banking transactions cannot afford prolonged downtime. Real-time access and zero data loss needs are moving data recovery to continuous data protection (CDP). The question to ask is, “Where in the spectrum from tape backup to CDP does your treasury data infrastructure sit and are you confident that it will meet your critical needs in times of failure or crisis?”
Facility & Location – The sobering experiences of 9/11, and the hurricanes, tsunamis and earthquakes since, highlight the necessity of establishing out-of-town or remote recovery locations. However, as compared to our bank partners, corporate treasuries are not typically multi-platformed, with multiple operating locations that are prepared to take over when one site suddenly becomes inoperable.
In consultation with IT and the organization’s overall business continuity plans (BCP), a well-constructed plan needs to include a back-up site customized specifically for treasury needs in order to be able to access key data, reports and otherwise keep the operation fully functioning. One corporate treasury set up a second site at a nearby sales office of the company, which was about 25 miles from the main office, far enough to be usable if a fire or damage was caused to the main office but close enough for most staff to travel to until the main building was again accessible. Of course, if a natural disaster hit, the backup facility might also be damaged or otherwise not accessible. However, it is more likely that any outage caused is localized and not a full-scale disaster.
It’s been said that disaster recovery “is the process of restoring the entire business’ ability to operate.” By evaluating and testing often you can be confident that treasury can still meets its liquidity obligations to the underlying businesses and keep operations running, all the while monitoring and mitigating risk despite working from a makeshift headquarters. Thorough preparation can shorten recovery time, reduce the drama and keep your treasury operating.