Melco Management Accounting Research
Discussion Paper Series
No.MDP2016-004

Possibility of Disaster Research through Survey of Risk Management
September 2016

Ikuko Sasaki
Faculty of Business Administration, Tohoku Gakuin University
1-3-1 Tsuchitoi, Aoba-ku, Sendai 980-8511, JAPAN
Email: ikuko@mail.tohoku-gakuin.ac.jp

The Melco Foundation
Nagoya, Japan
Discussion Paper Series of the Melco Management Accounting Research, in order to promote
the study of management accounting, has published this unfinished paper onto the Web. Pleaseobtain the permission of the author when citing this paper.

Possibility of Disaster Research through Survey of Risk Management

Ikuko Sasaki
Faculty of Business Administration, Tohoku Gakuin University
1-3-1 Tsuchitoi, Aoba-ku, Sendai 980-8511, Japane-mail:ikuko@mail.tohoku-gakuin.ac.jp

Abstract
The final objective of this research is to find whether risk management and business
continuity plans were useful countermeasures against the Great East Japan Earthquake andTsunami, how these countermeasures changed after the disaster, and whether they worked. Mayer
et al. (2008) conducted a survey of around 2,000 businesses in the southeast Texas region affectedby Hurricane Rita. This paper compares the results of their survey on risk management and how
businesses were affected by the disaster with the results of a survey on the Japanese case.
Moreover, the U.S. and Japanese samples showed that businesses suffered from serious
facilities damages as a result of the natural disasters. However, they also showed the differences inthe damages between the U.S. and Japanese samples, such as employee shortage or traffic
distribution. Further, with regard to the differences in risk management between the two samples, I
found that U.S. businesses tend to take a reactive approach against a natural disaster, while those inJapan tend to take a comprehensive approach.

Keywords: Risk management, business continuity plan, natural disaster, Hurricane Rita, Great East
Japan Earthquake and Tsunami

11. INTRODUCTION
With the increasing possibility of critical situations—not only financial crises, but also
natural disasters—much attention has been paid to research on the topics of risk and crisis. Soinand Collier (2013) mention that:“Recent world events including the global financial crisis, the financial crisis facing theEurozone, the horsemeat scandal, the Japanese earthquake and tsunami, the floods in Thailand andthe Deepwater Horizon oil spill in the Gulf of Mexico have all refocused and intensified interest inrisk” (p. 82).
Risk and crisis have been recognized as important topics in the field of accounting researchover past decades. However, most previous studies on these topics have focused on the narrative
scope, such as a “financial” crisis, although there are various types of critical situations thatcompanies face. Hearth (1995) notes that high-magnitude events result in a reduction in control
and the ability to manage, as the capacity of organizations to meet the demands of the impact of thecrisis or disaster event is exceeded by the demands of the situation.
Although a natural disaster is a type of disaster event, there were few studies that focused on
management accounting subjects prior to the Great East Japan Earthquake and Tsunami in 2011.
During this disaster, companies located not only in Tohoku, but also in the rest of Japan wereforced to discontinue their business activities for a while. This is because of not only the magnitudeof the damage, but also the globalization of firm activity and complexity of the supply chain. The
management control of many firms was disrupted at this time, although most of them had risk
management systems or business continuity plans (BCPs) in place. However, these systems and
BCPs had to be refocused after the disaster. The final objective of my research is find whether risk
management and BCPs were useful countermeasures against the Great East Japan Earthquake andTsunami, how these countermeasures were changed after the disaster, and whether they worked.
Moreover, my research is ongoing and focuses on the implications of risk management and BCPs
for firm management control, including supply chain management. This paper presents previous
BCP research, which has been addressed in both disaster and information technology research, forthe purpose of having a rich discussion on risk management, including BCPs and management
control, to achieve my final research objective. Therefore, this paper focuses on the early stages of
my research.
The rest of the paper is organized as follows. Section 2 presents previous studies on BCPs
and disasters. Section 3 discusses the results of the questionnaire survey conducted in Japan in
2013, and analyzes and compares them with those in the U.S. case of Hurricane Rita. Finally, in
Section 4, I conclude the paper and present my plan for future research.

22. Literature Review
A BCP is designed to avoid or mitigate risks, reduce the impact of a crisis (i.e., disastercondition), and reduce the time to restore conditions to a state of “business as usual” (Cerullo andCerullo, 2004). Moreover, BCP seeks to eliminate or reduce the impact of a disaster condition
before it occurs, though a disaster contingency recovery plan is primarily a reactive approach(Cerullo and Cerullo, 2004).
Ginger et al. (2006) mentions that the number and severity of large-scale disasters in the last
100 years has been growing dramatically. Additionally, large-scale disasters have a distinct
lifecycle, and over the course of the lifecycle. Moreover, a large-scale disaster makes it difficult toorganize, manage, and coordinate the many diverse agencies and stakeholders delivering services(Ginger et al., 2006). Therefore, the companies and governments need to prepare networks that
support recovering from and conducting disaster situations (Ginger et al., 2006). In fact, Mayer etal. (2008) surveyed 2,000 businesses in southeast Texas after Hurricane Rita and shows that the
respondents were plagued by recurring problems of short-term liquidity, long-term profitability, or
employee shortage, as well as loss of customers/market share.
On the other hand, Williamson (2007) indicates the results of the survey by SteelEye
Technology in 2006, which show that 83% of respondents reported having a formalized BCP.
However, only 68% of all firms have implemented a formal BCP (Williamson, 2007). Duncan etal. (2011) suggest that some of the more important reasons that firms may not have a BCP include
temptations to deny the possibility of low-probability events, possibility of little or no payback, andpressing nature of the current problems.
This study shows the results of risk management and its effect on Japanese companies during andafter the Great East Japan Earthquake and Tsunami. It is useful to compare the survey from Mayer
et al. (2008) with our results, though the size of the effected area of the disaster is different.
Moreover, the works of Duncan et al. (2011) and survey of Williamson (2007) provide insight into
our results.

3. Results of Questionnaire Survey and Comparison with Case of Hurricane Rita
3.1 Impact of natural disasterIn 2013, I conducted a questionnaire survey concerning the Great East Japan Earthquake
and Tsunami. The survey was sent to 1,723 of the listed companies in Japan, and a total of 279(16.2%) were collected. Most respondents were negatively influenced by the disaster. On the other
hand, 33.3% of 243 companies that reported a negative influence did not have a main office orfactories. See Figure 1 for more details.

3

Figure 1. Influence of Great East Japan Earthquake and Tsunami on Business1(Respondents are listed companies in Japan)
Respondents

Percentage

243
34

87.7
12.3

277

100

Negative Influence
No Negative Influence
Total(Figures 6-7, Okazaki, 2016, p. 81)

Moreover, Figure 2 shows which disaster effects the listed Japanese companies faced, as
these effects are slightly different from those faced by unlisted companies in the disaster area.
Figure 2. Effects of Great East Japan Earthquake and Tsunami on Business(Respondents are listed companies in Japan)

1. Damages of facilities or
equipment
2. Confusion of traffic distribution
3. Power shortage
4. Difficulties of supplying andprocurement
5. Sales decrease
6. Financial difficulties
7. Employee shortage

Not
Influenced
1
13.8%
33
7.2%
17
7.1%
17
5.5%
13
9.2%
22
66.4%
158
56.5%
134

2
21.3%
51
9.7%
23
10.8%
26
9.2%
22
13.8%
33
13.9%
33
16.9%
40

3
10.5%
25
10.6%
25
12.0%
29
12.6%
30
12.1%
29
5.9%
14
7.6%
18

4
9.6%
23
16.0%
38
14.9%
36
14.7%
35
15.9%
38
8.8%
21
10.1%
24

5
20.9%
50
24.9%
59
29.9%
72
24.8%
59
23.1%
55
2.9%
7
5.1%
12

Significantly
Influenced
6
7
14.6%
9.2%
35
22
16.9%
14.8%
40
35
12.5%
12.9%
30
31
19.8%
13.5%
47
32
13.0%
13.0%
31
31
0.8%
1.3%
2
3
2.5%
1.3%
6
3

N

Ave

M ed

Std.Dev

239

4

3.83

1.95

237

5

4.51

1.77

241

5

4.39

1.73

238

5

4.57

1.71

239

4

4.21

1.84

238

1

1.76

1.32

237

1

2.03

1.49

(Figure 3, Sasaki et al., 2015, p. 4)

In addition, in Figure 3, I show the results of the same questionnaire given to the unlistedcompanies located in the disaster area in order to compare them with those of Mayer et al. (2008),
relating to the disaster area of Hurricane Rita. My survey was conducted on the unlisted companies
in six prefectures in the northeast area of Japan that suffered from the disaster, and thequestionnaire was sent to 826 companies, with responses from 212.

1

This figure quotes from Sasaki et al. (2015).
4

Figure 3. Effects of Great East Japan Earthquake and Tsunami on Business(Respondents are unlisted companies in Japan)
Not

Significantly

Influenced

1. Damages of facilities or
equipment

2. Confusion of traffic
distribution
3. Power shortage
4. Difficulties of supplying
and procurement
5. Sales decrease
6. Financial difficulties
7. Employee shortage

Influenced

1

2

3

4

5

6

7

10.7%
19
1.7%
3
9.0%
16
5.1%
9
8.3%
15
38.4%
68
46.6%
83

15.8%
28
4.5%
8
11.2%
20
6.8%
12
7.2%
13
16.4%
29
16.9%
30

13.6%
24
7.9%
14
10.1%
18
11.3%
20
10.6%
19
17.5%
31
9.0%
16

9.6%
17
10.7%
19
14.6%
26
15.8%
28
13.9%
25
14.1%
25
10.7%
19

17.0%
30
17.5%
31
18.5%
33
19.8%
35
19.4%
35
5.1%
9
7.3%
13

17.5%
31
28.8%
51
21.4%
38
20.9%
37
18.9%
34
5.1%
9
4.5%
8

15.8%
28
28.8%
51
15.2%
27
20.3%
36
21.7%
39
3.4%
6
5.1%
9

N

Ave

M ed

Std.Dev

177

5

4.22

2

177

6

5.4

1.55

178

5

4.47

1.89

177

5

4.82

1.74

180

5

4.72

1.88

177

2

2.6

1.7

178

3

2.49

1.84

(Figures 2-3(A), Okazaki, 2016, p. 147)

Mayer et al. (2008) show both the impacts and losses due to Hurricane Rita, which include
extra expenses (83.3%); building damage (78.4%); loss of business income (77.3%); wind damage(76.3%); property damage (67%); electrical breakdown (57.7%); mechanical/equipment damage(32%); expediting expenses, vandalism or theft (10.3%); lost data (10.3%); flood (9.3%); and fire
(2.1%).
Some results of Mayer et al. (2008) are quite similar to ours. For example, both results showbuilding or property damage because natural disasters cause physical damage. Further, Mayer et al.
(2008) also show the effect of Hurricane Rita on business operations, as presented in Figure 4.
Figure 4. Effects of Hurricane Rita on Business Operations
Business operations
Employee shortage
Short-term liquidity problems
Loss of customers/market share
Inventory shortage
Long-term profitability problems
Loss of viability/competitiveness
Strained supplier relationships
Loss of vendor/shippers
Negative publicity
Inventory surplus
Bankruptcy

%
57.7
46.6
30.9
27.8
26
14.4
12.4
11.3
7.2
5.2
0

(Table 2, M ayer et al., 2008, p. 18)

The results show differences at this point. For example, over 50% of respondents reported
difficulties of supplying and procurement in my research, and only around 11.3% showed loss ofvendor/shippers and 27.8% showed inventory shortage in Mayer et al.’s (2008) survey.
5Additionally, with regard to employee shortage, unlisted companies in the disaster area ofJapan were not so significantly affected, while Mayer et al.’s (2008) survey showed it as having thehighest negative impact. In the Japanese disaster area, it was not only an earthquake, but also atsunami, that destroyed many buildings and killed many humans; as such, I expected that the
problem of employee shortage in the disaster area would be more significant. The results did notshow a significant impact of employee shortage on Japanese companies. I examined thedifferences in the averages of whether a company had an office in the disaster area, and found thesignificant difference between them: broadly speaking, companies with offices in the disaster areas
were affected by employee shortage in both the U.S. and Japanese disaster situations.
3.2 Recovery, Risk Management, and Business Continuity Plans
The recovery/revival after the Japanese disaster was smooth as a whole, and the result of the
speedy recovery/revival was not related to whether the companies had a main office/factory, as
shown in Figure 5.
Figure 5. Condition of Recovery/Revival after Disaster (of listed companies)
Strongly
Non-Applicable

1. Recovery/revival was costeffective.
2. Recovery/revival was speedy.
3. Recovery/revival would
contribute to growth in the future.
4. Recovery/revival was satisfactory
as a whole.

1
3.8%
9
4.2%
10
6.7%
16
2.1%
5

2
9.2%
22
5.4%
13
14.7%
35
5.9%
14

3
11.3%
27
7.9%
19
18.9%
45
13.4%
32

4
36.4%
87
22.9%
55
37.0%
88
34.9%
83

5
18.0%
43
24.6%
59
11.3%
27
19.3%
46

6
14.6%
35
22.9%
55
7.1%
17
15.6%
37

7
6.7%
16
12.1%
29
4.2%
10
8.8%
21

N

Ave

Med

Std.Dev

239

4

4.26

1.46

240

5

4.75

1.54

238

4

3.69

1.44

238

4

4.45

1.4

(Figures 6-12, Okazaki, 2016, p. 87)

Interestingly, most of the respondents had already had to utilize risk management several
times. Figure 6 shows the tackling situation of risk management, and nearly 50% of respondents
modified their countermeasures against risks or started new measures after the disaster. In addition,
almost 30% of companies have introduced BCP/BCM after the disaster. Those results imply thatrisk management is just a countermeasure against risks, which companies could forecast, but theyneed other countermeasures in the real-life context (Sasaki, 2016).

6

Figure 6. Tackling Situation of Risk Management

Identification of Significant Risks
Countermeasure against Risks
Training in Response to Risks
Planning Risk M anagement
M ake M anual of Response to Risks
BCP/BCM
Disclosure of Information about Risks

Countermeasure of Risks
Continue
M odified46.40%
38.70%
127
106
43.50%
38.40%
13889
50.40%
32.50%
13889
37.50%
36.40%
103100
36.20%
44.60%
100
123
22.50%
37.30%
62
103
58.70%
15.20%
162
42

Start New Countermeasure
after Disaster12.80%
35
15.60%
43
10.90%
30
17.50%
48
15.20%
42
30.80%
85
4.70%
13

N/A

N

2.20%
6
2.50%
7
6.20%
17
8.70%
24
4.00%
11
9.40%
26
21.40%
59

274
276
274
275
276
276
276

(Figure 1, Sasaki, 2016, p. 174)

However, we cannot compare these results with those of Mayer et al. (2008), which foundthat 39.3% of businesses had high preparedness and the majority of businesses (60.7%) took only
a “few” or “some” preparedness measures (Mayer et al., 2008). Moreover, concerning strategicplanning for disaster and preparedness measures, Mayer et al. (2008) show that the respondentcompanies mainly focused on disaster contingency recovery plans, which are a type of reactive,
rather than comprehensive, approach. For example, major changes to countermeasures were madeafter Hurricane Rita, including purchasing backup generators (20.2%), storing copies of records
offsite (10.6%), and becoming more aware of what insurance does not cover (17.4%)2 (Mayer etal., 2008). See Figures 7 and 8 for more detail.
Figure 7. Strategic Planning and Preparedness Measures
M easure
Purchased backup generators
Developed annual plan to generate newcustomers
Constructed upgrades to prevent futuredamageDiversified product line, location, or target
customers% before
Hurricane% M inor Changes after % M ajor Changes after
Hurricane
Hurricane% No Changes after
Hurricane

10.6

36.1

20.2

33

20.9

18.7

7.7

52.7

8.6

18.5

8.7

64.2

8.8

16.5

3.3

71.4
(Table 5, M ayer et al., 2008)

2 The result of insurance coverage is omitted here.

7

Figure 8. Procurement Procedures% before
Hurricane% M inor Changes
after Hurricane% M ajor Changes
after Hurricane% No Changes
after Hurricane

Stored copies of records offsite

41.5

20.2

10.6

27.7

Ordered extras of hard-to-replace parts

7.6

34.8

6.5

51.1

Created backup vendors and shippers

9.7

32.3

3.2

54.8

Stored invoices, shipping lists offsite

29

14

2.2

54.8

26.1

14.1

3.3

56.5

13.1

21.1

0

65.6

M easure

Developed pre-arrangements with vendor
requirements
Created new relationships with vendors andshippers(Table 6, M ayer et al., 2008)

Here, we have to caution that Mayer et al. (2008) do not focus on management ormanagement control in disasters. Nevertheless, their results show an interesting phase, which may
be caused from the cultural differences between Japan and the Western world.

4. Conclusion and Future ResearchThis paper reviewed the previous literature on BCPs and disasters. I found that some works
focused on the practical possibility of BCP, although the research was mainly conducted in a
non-accounting area. However, one of these studies, Mayer et al. (2008), surveyed the effect ofHurricane Rita on businesses in the southeast Texas region as well as their preparedness against thehurricane. Then, I compared their results with those regarding Japanese companies after the Great
East Japan Earthquake and Tsunami. Although the analysis did not necessarily show thecounterparts of both survey results, there were some implications for future research, in particular,
what we need to do to continue this research on disasters and risk management as well as what weshould analyze when we treat Japanese company cases.
Power (2004) states, “Risk management organizes what cannot be organized... The risk
management of everything holds out the promise of manageability in new area. But it also implies
a new way of allocating responsibility for decisions which must be made in potentially
undecidable situations” (p. #). Many natural disasters have occurred this year, such as the
Kumamoto earthquake and Typhoon No. 10 in Hokkaido, and companies needed to take measuresagainst each situation; moreover, the countermeasures were totally different from those of thecompanies after the Great East Japan Earthquake and Tsunami. Therefore, as a future research plan,
we are going to conduct many case studies on disasters because risk-management research isdifficult to generalize.

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