CREJ - Property Management Quarterly - May 2015
Modern business depends on technology. Servers, desktops, notebook computers, tablets and phones are essential to everyday workloads and doing more with less. Any disruption to these tools can cause extreme stress to an already overworked employee or team. If your building has a fire, water damage, construction mishap or any number of possible disasters, it affects your tenants. What is Your Liability? When damage to technology that runs a business occurs, there are more factors to consider than just hardware. These are referred to as soft costs and include software installation, network configuration, data recovery and transfer, employee profile setup, license and maintenance contracts, and warranties. All these soft costs affect the bigger concern – business interruption. How long can a business be down before it affects income? It could be weeks, days or just hours. When asked, most companies will say, “Never, we can’t be down at all!” Just the thought of being without your equipment for two days without warning is a bit unnerving, much less to experience it. How quickly a company can get back to business depends on whether it has a plan in place for disasters. Larger companies may have them, and sometimes the companies are required by law to have such plans in place. However, small businesses make up 99 percent (according to the U.S. Small Business Administration) of the U.S. employers, and without the requirement it leaves small business owners at a disadvantage when disaster strikes. If the mishap occurs as the fault of the business, then its insurance should take over. However, if something goes wrong with the building, what is your liability? Subrogation is a big deal in the insurance world, and you can bet if there is the opportunity to shift the cost of damage to someone else, you can count on it. Let’s look at it this way, if your building is damaged, you fix it because it’s your building. But what about the contents inside the building? If a loss occurs due to maintenance issues, are you required to foot the bill? If so, how do you make sure all quotes are correct and in the best interest of claim mitigation? Vendors that install and sell equipment for a living are not likely to be worried about costs, especially in an insurance situation. You need to make sure cost-effective solutions are considered. Chances are you have dealt with contractors before and have a handle on the construction side of things. But what about the building contents – more specifically, what about the information technology and business technology used in the environment. There are several questions that should be answered quickly to minimize business interruption and larger costs to the claim, including was there technology affected by the loss; to what extent; can it be fixed and put back in operation quickly; and are vendors involved? Vendors provide a valuable service, but remember, they sometimes may see a loss as a sales opportunity and may suggest upgrades that are not necessary, or suggest replacement of items that are not needed. This can increase the cost significantly due to lack of experience with these types of situations. Due diligence needs to be done. Instead of replacing it all, you should look at what was really affected and what wasn’t affected. Ask yourself: • How bad is the damage? • Can items be used right away? • Can items be restored and put back into use as soon as possible? • What needs to be replaced? • How long will it take to get back up and running? If equipment is replaced, the following eight questions should be addressed: 1. How long until the hardware can be delivered? 2. What configuration needs to be done to each component? 3. What software needs to be installed? 4. Are upgrades to the equipment necessary? 5. Are the technologies compatible with each other? 6. Is data recovery needed from the old equipment, and how quickly can that be done? 7. Do user profiles have to be set up on the workstations again? 8. Are there any network configurations needed for the equipment? Replacement equipment can take weeks to arrive and set up, which may delay the business from operating for the same amount of time. Calculate the hardware costs plus the soft costs and add in the days or weeks of lost revenue to have a better idea of how the claim quickly can escalate in cost. From a standpoint of minimizing business interruption and claim costs, the quickest way to get back up and running is to use the original equipment. This equipment is already configured, and has all of the software and profiles intact. Proper inspection and restoration of the hardware should help it live a normal life, barring any permanent damage from a direct hit by water or heat. In a loss that is handled properly, there may be a mixture of recovery and replacement. Using the original equipment is usually a quicker and more cost-effective option, equaling a fraction of replacement, especially when considering the soft costs. If technology is addressed quickly after a loss and contaminants cleaned from circuit boards properly, odds are the original equipment can be restored to a preloss condition. A proper investigation of loss involving technology should flow like this: 1. Determine what equipment was affected. 2. If equipment was affected, what can be repaired and recovered costeffectively? 3. Create a plan to restore operations to enable workflow to continue. 4. Is after-hours on-site mitigation necessary? 5. Order equipment that needs to be replaced as soon as possible. 6. Plan different phases to get full operations back into working condition. 7. Make sure there are no compatibility issues with a mix of new and old technology. 8. Test and use the systems to make sure all operations are back to normal. Sometimes the knee-jerk reaction to a loss involving water or smoke is to replace it all. While this may be great to get a system upgraded and new, it is not the best option to save time, money or the hassle that comes along with new equipment. Costs associated with the loss will skyrocket. Your job is to minimize costs while effectively returning your tenants business to normal operations. As we have discussed, there are many considerations to determine what the quickest and most costeffective way to get business technology systems back up and running after a loss. Make sure the vendors involved take all of these considerations into account. There are also measures your tenants can take to proactively protect against damage. More information and a free checklist to hand out to business tenants are available at MinimizeBI.com.