Survey: Many Businesses Ignore CAT Risk
By Mark E. Ruquet
NU Online News Service, Feb. 23, 3:55 p.m. EST?A survey of executives indicates that, despite losses from last summer's Northeast blackout, a third of businesses do not have risk management or disaster recovery plans in place, and don't plan to make investments to deal with power outages and other catastrophes.[@@]
More than 66 percent of the 142 businesses that replied to a survey said they lost a full day or more of business, with 25 percent saying they lost two or more days. For 22 percent of the businesses, the losses amounted to more than $50,000 per hour in downtime costs. That translated to $400,000 in losses for an eight-hour day, the survey said.
One of the authors of the survey report, Mark Slavick, risk practice leader of Mirifex Systems, LLC, a Strongsville, Ohio, consulting firm, said that one of the surprising results of the survey is that there has been so little movement toward improving risk management operations despite Sept. 11, hurricane Isabella and a recent onslaught of computer viruses.
"It is a surprise that so many businesses operate without a plan in risk management or disaster recovery process in place," he said.
The lack of planning seems to be primarily among smaller corporations in the $10 million to less than $5 billion in revenue range. He speculated the reason may be that the corporation's heads may be too busy growing the business' value to understand the cost benefits from risk management and business recovery planning.
Close to 52 percent of businesses in the survey said they would not be investing more in their risk management, business continuance or disaster recovery.
"It is one thing [for them] to be told in magazines and articles that there could be $400,000 per day in losses, but few companies have taken that and assessed it against their cash flow and their brand image," Mr. Slavick said. "At what point does $400,000 per day mean I am going to have to file for Chapter 11 bankruptcy. I think that is the connection they have not drawn. They have not internalized the risk to their organization."
Mr. Slavick said he hoped the report would help raise the need for risk quantification among businesses.
The survey and report focused on companies affected by the August 2003 blackout that hit mainly Ohio, Michigan, New York, parts of Canada, a section of northern New Jersey and parts of New England.
The Internet survey received 142 responses from executives heading businesses in the affected areas.
In addition to Mirifex, the survey sponsorship included Western University's center for the study of regional economic issues, REI@Weatherhead, in Cleveland.
In the future, Mr. Slavick said he would like to do some focus group studies on why companies are not following through with protecting their company assets from disasters.
A full copy of the report is available at: blackoutsurvey.mirifex.com/blackout_2003.cfm or www.weatherhead.cwru.edu/rei/inthepress.asp.
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