SELLING TOMORROW

Pursuant to our discussion yesterday, today our topic is Business Continuity. While Disaster Planning, Disaster Management, Disaster Recovery are all equally important, the last measure of a successful plan is Business Continuity. In reality, the first three steps are all designed to cure the last. Better stated, Business Continuity is all about being back in business as quickly as possible. One must always ask what if? Business Continuity is all about your business...............not your building.

If man or nature destroys your building or the building where you operate your business, you need to know where you will operate tomorrow.

Your business type will dictate to a degree how easy your business can resume sales.

• Businesses with inventory for sale-wholesale or retail will need a place to sell that inventory tomorrow
• Businesses based on the service industry will still have some inventory if you have a service fleet. Finding a new base of operations, even if it's on a temporary basis is easier than moving standing inventory
• Businesses whose business is leasing office space won't have a business for a while other than trying to manage the disaster, moving tenants to other buildings you manage, trying to hold on to the tenant or knowing how to legally rescind the tenant lease to allow them to move on, temporarily or permanently
• Businesses whose business if health based with patients requires special considerations

There other points to access as well:

• Is there equipment damaged that is essential to a manufacturing process?
• Is the IT information backed up and where?
• Is there power available to run my business even if my business building isn't damaged?
• If my business is multi location, can I shift part of my process elsewhere?
• If my business has a supply chain, can I stop material deliveries in route, can I direct them elsewhere?

There are PR problems that may creep onto your radar screen too. Have a critical PR firm at the ready if you have a larger company, especially if the disaster could harm the public.

I'm keeping this brief this morning as I have an early appointment so I want to leave you with the single parting question that every company will have to address first. It won't matter what type business your firm operates in, it won't matter how big or small your firm is or where your company is located and it won't matter if you are manufacturing, service, retail or wholesale. IF A DISASTER HAPPENS AT 12:00 NOON TODAY, HOW WILL YOU ANSWER THE PHONE WHEN IT RINGS AT 12:01 PM?

We Never Saw it Coming

This is the time of year when I really begin to push my clients to knock the dust of their Disaster Plan and re-visit whether or not the document is still current.  It may be hard to believe, but I still have clients who do not have a sufficient Disaster Plan.  Some of these clients have asset exposure in the billions. While most of these clients do have a risk manager, they do not have a sufficient plan.

If you ask for a disaster plan in Florida, most companies will hand over a Hurricane Disaster Plan - period. That is understandable since that likelihood of a hurricane here (or other similar wind related events)  is a much more probable event than other disaster. My concern though is that any company and its personnel is vunerable to other disasters, either natural or man-made, that have not been accounted for in the plan.

To fully understand a disaster plan, we need to understand that there are several components. A disaster plan consists of a Disaster Preparedness Plan, a Disaster Management Plan, a Disaster Reocovery Plan and a Business Continuity Plan.

The Disaster Plan should address every possible disaster profile type.  Each profile type should have the associated and applied probability combined with a risk tolerance profile and a multiplier effect on those probabilities included.  In correlation, each disaster profile should be accompanied by a disaster plan, management, and recovery profile to match.

When we talk about the risk tolerance and the multiplier effects on your business, one has to consider that your business can be impacted by disasters that occur to others within the supply chain.  If your business is represented through sole source suppliers, it is important for you and your business to demand Disaster Plans from your supply chain - both up and down stream - to determine how the affects of disasters may affect your company.

There is another perspective on the risk dynamic of a proper Disaster Plan that you may not think of in the planning process. If your business operates in a multi-tenant building, awareness of other tenants and their disaster plans, the management company's or owner's plan or lack of, could impact your business. A disaster in a mulit-tenant building which is vertical could have devastating effects on your business, but not just because of collateral damage. There is the possibility that your business could be closed, even if for a short time, in order to cure the damaged areas of your building.

Lastly, the human threats of violence, terrorist activity, chemical and biological contamination from either accidental or human targeted actions could impact your business. Although each of these may only carry a small likelihood of actual occurance, each should be addressed.

Like every sales forecast, every budget and every other disaster plan, the minute you finish...it will be wrong. Don't worry. The planning process itself is worth its weight in gold. 

Now that you have read this...do what I do each and every time I'm handed a plan to review. Call all the phone numbers contained it the plan and see who...if anybody...answers the phone.

Tomorrow we will address issues in Business Continuity.

SINS OF THE PAST

Several years ago now I read the book: "The Fifth Discipline" by Peter Senge. The book leaves you with that kind of "well......duh" feeling. I do not think there is an industry or grouping of people supposedly dedicated to a common goal that wouldn't benefit from the application of those theories.

The construction industry is definetly one of these groups. The construction industry for the most part is still modeled after old manufacturing practices and even older assembly line task oriented behavior. "It's not my job" is a mantra. The industry itself seems to have a learning disability.

As a whole, the industry has not grabbed the LEAN Principles and put them into action. The industry was quick to grab hold of GREEN but all those efforts did not address a core problem embedded in the industry as a whole. GREEN makes the industry look better, but did not actually make it better.

In the field, there is little Capabilbity Model improvement actions or control processes that would prevent defects from occuring. A defect can be anything. Wrong cuts, poor efficiency, wrong installation, wrong products, unfamiliarity with product storage, installation criteria, material stabilization.......etc. The list is seemingly endless.

I have to interject something my dad told me when I was a kid - it was a joke, but it had underlying LEAN principles that are more easily recognized today. The little joke started out by talking about the guy who was hired to paint the white line down the middle of a long road with a can of paint and one paint brush. On the first day, he painted a half mile, the second day he painted a quarter of a mile and on the third day he only painted a few hundred feet. On the third day his supervisor showed up to inspect his progress and was aghast at the lack of progress. When the supervisor watched the man in action he quickly informed the laborer that he needed to move the paint can along with him.

You might laugh a little about that but I've seen something very close to this on a construction site almost every day. Not too long ago I approached a superintendent on a repair project - who I had already taught to approach the apartment building exterior in crews or teams with each team having a cut man on the ground -and asked him why the cut man was having to walk back and forth to the piles of lumber and later on.....siding. I counted the steps and figured that the contractor's crews were wasting about $2500.00 per day, per building. At the time, there were only two buildings under investigation and the project was on a cost plus basis so the inefficiency was costing my client money. The point? Move the lumber you idiot.

On the same project, a different contractor, installed 6 windows that were visually defective from the manufacturer. During the pre-contract interview with this contractor, when asked about process and quality controls in place at the company, we were informed that the company did have process and quality controls in place. Apparently, they did not.

The windows were bowed outward from the factory. The defective windows were only caught by the owner's representitve on a courtesy punch list walk to inspect joints and nailing patterns on the first floor of the building. The first observation of one bowed window led to discussions about the installation of the window causing the bow or perhaps the original wall assembly was badly bowed. Turned out neither of those was true and the factory representative was brought out and quickly admitted that all of those windows were manufacturing defects.

All of that to say, that the general contractor did not have sufficient process controls to assure that visually defective windows would not be installed.

This story is just the tip of the iceberg. There are thousand more just like it. Poor planning, an adherence to outdated methods and means, old technology or none at all, poor or inadequate skills, and an overall failure to adopt and put into practice newer, more "one piece flow" concepts, LEAN models and Six Sigma controls in the industry means were paying more and more and getting less and less.

I strongly believe that Mr. Senge's point about pushing growth or more appropriately, pushing learning and change, is a bad idea. Mr. Senge suggests that removing obstacles to learning, change and growth can cause momumental shifts and changes in the way a group of people, a company or even an industry learn, innovate and change.

The industry is languishing thirty or forty years behind. Time to catch up!! Move the paint can.

Building Code isn't a Measure of Quality

I can't tell you the number of times that either me or someone who works for me or with me hears the same line. The "line" usually falls close to "it was built to code" or "it passed code". We're talking about buildings, homes, apartments, student housing, schools, court houses, fire stations......you name it. Professionals in my business know that the building code, architects of the code, and enforcement agents of the code don't exist to ensure quality construction. The building code, in all it's forms, exists to assure a minimum standard of life safety in all structures that are newly constructed and when possible, apply retroactively. But if you know what services ARISTON, LLC provides to our insurance clients and our owner's representation clients, you would know that we've never consulted on a litigation case where construction defect allegations against the original contractor had failed to pass a final inspection by the local building authority. We have never worked a large property loss where there was millions of dollars at risk based upon construction defects where the building had failed to pass a final inspection by the local building authority. Lastly, we've never worked a large property loss unrelated to original  defects that didn't lead to some discovery of latent construction defects or inherent vices during the inspection and discovery process. No, buildings aren't ever perfect, but I'm suggesting that for the most part, they aren't really even all that close.

I once led a team in the remediation and reconstruction of a 17 story mid-rise hotel here in Central Florida where water intrusion around over 400 windows was so severe that the wall paper on the exterior window wall wouldn't stay on the wall. The hotel tower was less than two years old. The tower cost 33 million to build new including FF&E and cost over 3.8 million to repair. Each window, the openings and the overall project was permitted and inspected under Florida Code and code enforcement in the county having jurisdiction. Every window was installed incorrectly and glaringly so. Each window was part of a "shop drawing"package and a licensed architect approved the shop drawings for the window package that was supposed to be installed. The windows were so badly installed that it would take only a short time to educate even a novice on why the windows had failed. Incidentally, the architect did not catch that the window openings were the wrong size and that the windows installed were not what was indicated on those same shop drawings.

The general public is usually the last to know....or maybe they do not want to know. But, perhaps the public needs to know that the building inspectors aren't providing quality assurance inspections on the buildings under construction around town. As a bystander to the process, one should know that just because the building department signed off on the permit (meaning that the department has given a CO or "certificate of occupancy") that certain key elements of a buildings' "envelope" passed inspection - that doesn't mean that windows, doors and roofs aren't going to leak due to either installation failures. Product defects are not usually visible, but some are visible and are either ignored or the contractor fails to utilize any process controls on the job site to catch obvious manufacturing defects. Regardless of how the obvious defective products are missed, they get used but that's an entirely different blog topic.

The building code in Florida was recently amended to include certain "get out jail free cards" such as "installed according to manufacturers guidelines" in the definition of "code" as an attempt for building code officials to take one more step away from liability for failures in the inspection process. But one still must remember that code is all about life safety..............not quality assurance. And on the topic of life safety......most if not all inspection offices take the topic of life safety very seriously.

I'll leave you with this thought.........there is better quality control in the car you drive (which incidentally is disposable) than the quality control in your own personal home which most likely has a 30 year mortgage.

A 10 Year House and a 30 Year Mortgage

In my real job, I spend all of my time defending insurance companies, their adjusters and attorneys against claims that aren't legitimate. Before you assume the worst about me understand that for every dime the insurance companies pay out of claims that cannot be substantiated, that's just one more driver for raising our premiums. Keep in mind that the property insurance industry hasn't made any money on underwriting (the process of collecting premium dollars and paying out claims) since roughly 1984.

The claims I usually work are older, sometimes measured in years. They are complex. They are already in or soon will be in litigation. Even when I get them, they may take years to resolve. That's usually because someone upstream fouled up the claim and now it's much harder to resolve. However, when the claim is valid, the insured is  paid the indemnification dollars plus other monies due in conjunction with the policy language. More times than not, my company proves the claim cannot be substantiated and sometimes, although it is rare, someone gets accused of insurance fraud.

But, that's not the real point of this posting. As a general rule, I do not work residential claims unless the claim dollars are large. By large I mean in excess of a couple of million. But, I do work claims on large condominium complexes, student housing, luxury homes, and a vast assortment of others.

What I can tell you from those experiences is that in all probability, the house you own has construction defects. Those defects may manifest themselves as visual problems in the future, or they may not. They may be minor, or they may not. They may be affecting the health of your family, or they may not. They may be affecting the value of your property and you have rights against your builder and even possibly your homeowner's insurance company for the issues surrounding the construction defects.

In Florida, the most common categories of defect are windows, doors and roof assemblies. I've never seen, not even once, a window installed correctly, unless I've personally overseen its installation. And in Florida, for some unknown reason, state building codes still allow for wood construction, even on the first floor.

Since the windows and doors are not installed correctly, water intrusion begins and with water intrusion comes decomposition of wood structure members, therefore compromising the structural integrity of the entire building.

I'm currently involved from an owner's representative capacity for a student housing project where all 2,532 windows were installed incorrectly. I'm not talking about an effort to VE the project. I'm talking outright negligence in the attempt.

Construction defects and the pursuit of funds from the original contractor to correct those defects is also part of my work. I represented a couple who built a new home in Central Florida and invested over 3.5 million dollars to learn that not a single window, not a single exterior door nor the applied stucco was installed according to best practices, industry standards or manufacturing guidelines.

Suit was filed against the general contractor and two architectural firms demanding restitution in excess of 2.8 million dollars to correct the defects and the subsequent loss of use as well as the  in diminution in property value knowing the defects in the property would have to be disclosed should the couple ever want to sell the residence.

The point is that wood decays quickly under the constant exposure of water. Decay of wood components is accelerated when the wetting and drying of structural components is in a wall cavity and within two years of construction  or less, wood structural components may have lost more than half of their structural load capacity. The damages won't be visually observable to most. And you should also know that builders of wood structures (in multi-family especially) know the statute of limitations and repose and build accordingly.

There is a PUD (planned urban development) very close to our neighborhood and my wife and I enjoy dinner there occasionally and enjoy the walking and bike paths. It was during construction of some of the apartments and row type townhouses that I observed some of the ill-conceived attempts at water proofing the building envelope. Today, many of the buildings are in litigation over the construction defects. In the same PUD, I've seen single family houses shoot up in record time and have synthetic stucco applied to their exterior and before the house is actually sold to the first owner, the contractor is out with a caulking sub-contractor filling the cracks in the stucco finish and painting (again).

While the building envelope is important on every building, if you are building a wood structure, no matter what part of the country you live in, the building envelope is the single most important part of the structure. If you are in Florida, even more so. If the building envelope is compromised for any reason, you may very well have a 10 year structure with a 30 year mortgage. So, pay attention and make sure your building is water tight.

For the majority of home owners, this asset (questionable in today's market) is the single largest purchase a family makes. It only makes sense that this asset have the quality anticipated.