Cost-Effective Business Resilience Decision Making
Cost-Effective Business Resilience Decision Making
- Noah Dormady, Noah DormadyOhio State University
- Alfredo Roa-Henriquez, Alfredo Roa-HenriquezNorth Dakota State University
- Chris SniderChris SniderThe Snider Group
- , and Adam RoseAdam RoseUniversity of Southern California
Summary
Practitioners, scholars, and students engaged in the analysis or evaluation of natural hazard impacts, particularly those involved in quantifying economic disruptions, should understand basic analytical principles and best practices. Economic analysis of disasters is particularly challenging, and there are best practices that can be employed to address many of these measurement and quantification challenges, including survey-based empirical data collection and analysis techniques.
Once these challenges are considered, and an evaluation has been performed, another more difficult challenge occurs—how that information can be used to effectively and cost-effectively improve hazard resilience. This involves how businesses, organizations, and communities can then use those analyses and data to improve operations, improve resilience, and restore functionality at the lowest cost.
The choices a business makes in the aftermath of a disaster can play a key role in its ability to continue operating, as well as in its pace of recovery. Those operational decisions are critically important and must be informed by a complex set of factors beyond property damage alone. It is important that decision makers develop a set of evaluation criteria for quantifying business resilience, with an explicit focus on cost-effectiveness. This is important because, due to the wide-ranging nature of disaster impacts, many disrupted businesses pursue resilience actions for which costs exceed avoided losses. In other words, they spend more money to avoid losses than the value of those losses. Recent natural disaster data collection and analysis efforts from Hurricane Harvey and other major disasters reveal that many businesses respond to disasters in cost-effective ways, while others spend inefficiently on resilience actions or tactics.
It is important that society learns from the experiences of businesses affected by prior disasters, so that businesses, organizations, and communities can more effectively and cost-effectively respond to future disasters, prepare for hazards, and accelerate recovery when disasters strike. It is also important that these objective, data-driven decisions, which aim to avoid economic losses and hasten recovery, consider the role of insurance. Insurance policies, practices, and incentives can vary, and they can fundamentally alter the behavior of firms in responding to natural disasters.
As such, cost-effective business resilience decision making is multifaceted. It involves operational decisions in the presence of post-disaster constraints that impact the firm’s ability to produce its goods and services. It involves cost and investment considerations, dynamic decision making, and external opportunities and limitations associated with contractual, legal and regulatory, and insurance-related considerations.
Keywords
Subjects
- Recovery
- Resilience
- Risk Assessment
- Economic Analysis of Natural Hazards
- Preparedness