Whether it's wildfires or earthquakes in the West, tornadoes or flooding in the Midwest, hurricanes in coastal areas, or terrorism just about anywhere in the country, every organization faces the potential for disastrous events that could interrupt business and wreak havoc with cash flow.
"The key to your organization surviving such disasters could very well be the resiliency of your treasury function," says Mark Livingston, Senior Vice President, Director — Business Continuity, Disaster Recovery and Records Management, at First Tennessee. "Therefore, it's vitally important that treasury managers develop detailed business continuity plans for their departments that adhere to industry best practices."
Internal planning basics
Step one in developing a business continuity plan in treasury is to fully understand all of your business processes and their exposures. This requires a detailed review of operations and documenting all cash flow-related processes and how different disasters could impact them.
Another step is to define all mission critical treasury activities — those activities that you could not live without for several days — and determine how you could work around them if they were interrupted. You want to be able to answer questions such as: In the event of a disaster, how will you fund payroll and time-sensitive trade payment disbursements? How would you bring in money from your cash concentration system? How would you manage your cash position?
Draw up a list of possible disasters, from labor strikes to computer viruses to terror attacks, and determine which ones are most likely to impact your organization. Then tailor a business continuity plan for those events.
A formal continuity plan should define a specific response for each possible problem stemming from a disaster. Each response should Follow Best Practices in Business Continuity Planning encompass three different areas: people, infrastructure (hardware,facilities, software), and the reference materials that support eachresponse (call lists, instructions).
It's wise to develop informational matrices to support your plan. You could have separate matrices for various treasury components, such as staffing, facilities, telecommunications, hardware, software, and processes. A treasury staffing matrix, for example, might list each treasury staff member and a primary backup person in short-term,medium-term, and long-term disaster scenarios.
Training and testing
It's not enough to draw up a good plan and detailed matrices. You also need to train all of your staff on every facet of the plan.Test the plan at least annually. In addition, whenever your organization experiences significant change, such as new technology, a new business line, or an acquisition, update the plan to reflect that change.
The role of your bank
No matter how prepared your company is, if your bank is also impacted by a disaster — and ill equipped to handle it — your company's ability to continue normal operations will be greatly hindered. As a result, you should discuss business contingency planning with your banks and thoroughly investigate their business recovery plans.Start by determining which of the bank's products and services are mission critical for your operations, and then evaluate whether the bank has appropriate disaster recovery capabilities for those products and services. Some key questions to ask your bank(s) include:
- How is the bank backing up data related to your company's transactions? How frequent are those backups? Are they real-time?
- Does the bank have an operational plan in place to ensure continuous service for critical treasury management services? For example, if you use a bank lockbox, does the bank have an equipment-ready facility established in case the primary lockbox processing center is disabled or unavailable?
- Will the bank allow you to tour backup operations sites for your key treasury management products?
- How often does the bank test its business continuity and disaster recovery plans (both people and technology plans)? What type of testing does it perform?
- How will the bank communicate with you in the event of a disaster?
- Does your bank offer any products or services that would be especially helpful from a disaster recovery standpoint?
Developing a plan
Consult with a business continuity advisor when developing your plan and consider First Tennessee Treasury Management products and services to supplement your plan. For more information on the Web,visit the following sites: