Thesis: Economic Impact of Disaster Recovery

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Disaster Recovery

Economic Impact of Disaster Recovery

What is the economic impact of not having a disaster recovery plan should a disaster occur?

Understanding the economic impact of failing to have an adequate disaster recovery plan is important as it can help us to understand the economic costs a disaster can have on an organization. The reason we need to understand economic impact is simple; we need to know what's at stake if disaster strikes. Knowing the costs of a disaster to our organization or ourselves can help us better understand how to prepare a disaster recovery plan and help identify the best ways to properly spend our money to mitigate such an event. Understanding the economic impact of a disaster will help enhance how we plan for a disaster and how we respond to it.

There are many forms of types of disasters that can impact an organization negatively. These can range from natural disasters such as Incidents of floods, earthquakes and hurricanes or manmade loss of data and the capacity to produce. This can include aspects such as,"…fire, employee sabotage, computer viruses, physical damage (e.g., static electricity or disks crashing) and theft" (Carlson & Parker, 1998, p.10).

The economic affect of disaster to an organization or company can be extensive and even potentially devastating. For example, in the 1992 flood in the city of Chicago, organizations and business suffered over one billion dollars in damage. Even more important is the fact that the effects of disasters can remain and impact the organization long after the actual disaster event. Therefore, disaster recovery is an essential component of a return to functional and economic viability. As one expert on this subject states;

While the loss of sales during a disaster is harmful, the loss of customers, vendors, inventory and employee records extend recovery times from weeks and months to years. If a company has a well designed disaster recovery plan (DRP) in place, the plan will minimize the inconvenience of a disaster, while improper planning can result in a company experiencing bankruptcy.

(Carlson & Parker, 1998)

The magnitude of this problem is clearly evident from the following quotation from an article by Chisholm ( 2008) in the CPA journal.

According to Info-Tech Research Group, almost 60% of North American businesses do not have a disaster recovery plan in place that would resume their information technology (TT) services in case of crisis. The seriousness of this problem is supported by research from Faulkner Information Services, which found that 50% of companies that lose their data due to disasters go out of business within 24 months.

(Chisholm, 2008, p. 11)

The above quotation not only emphasizes the importance of good disaster recovery planning but also stresses the importance of understanding the economic cost of possible disaster scenarios and why long-term and contingency planning is essential. Therefore, the lack of adequate disaster recovery strategies can lead to serious economic consequences and even to the loss of an entire business concern as a result of unpreparedness in the face of disaster.

The paper will therefore focus on research into the economic impact of disasters in a way that will show how understanding the economics of a disaster can help us better prepare a disaster recovery plan. The audience that I will target is fellow students and information technology professionals that are interested in the economic impact of disaster recovery. I hope that my research question and paper will help further the understanding of economic impact as it applies to disaster recovery.


A disaster in terms of the context of this study can be generally defined as "…any interruption in a company's operations that will significantly affect employees and/or customers" (Carlson & Parker, 1998. P.10). Actual examples include the loss of power of to First Chicago Bank in 1987, due to the heaviest rain falls in history; the flooding of the data center of the Robert Bosch Corporation Charleston, SC, in 1989; and many more recent examples, including the Katrina disaster. However, many of these companies recovered due to adequate recovery plans.

A sobering statistic that relates to the link between disaster recovery and economic recovery is as follows: "The average company that experiences a computer outage lasting longer than 10 days never fully recovers. Fifty percent go out of business within five years. The chances of experiencing a disaster affecting the corporate data processing center are one in 100" (Murphy, 1991, p.60).

A disaster recovery plan or DRP is defined as "… the method by which a company identifies critical resources, determines how these resources are negatively impacted by a disaster, and develops a plan to minimize and recover from the negative impact of a disaster " (Carlson & Parker, 1998. P.10). Another common and wide-ranging definition is as follows:

…a disaster recovery plan consists of the precautions taken so that the effects of a disaster will be minimized and the organization will be able to either maintain or quickly resume mission-critical functions. Typically, disaster recovery planning involves an analysis of business processes and continuity needs; it may also include a significant focus on disaster prevention.

(Definitions: disaster recovery plan)

A central issue that has to be taken into consideration, especially in terms of the economic effects of disaster recovery is the fact that if a business or organization is disrupted for a lengthy period of time then this would seriously affect "… the overall viability of a company and may eventually lead to bankruptcy" (Carlson & Parker, 1998. P.10). It follows that the comprehensiveness of a company or organization's disaster recovery plan has a crucial bearing on the extent to which the company or organization can recover from any significant disaster. Consequently, the normative approach is to have a comprehensive DRP strategy that includes the following objectives.

* Protection of assets and records

* Resumption of normal operations

* Protection of personnel

* Continuity of management

* Minimization of losses and recovery time

(Carlson & Parker, 1998. P.10).

A distinction should be made however between a continuity plan for disaster recovery and preventative planning for disaster. As Cerullo, McDuffie and Smith, (1994) point out,

A computer contingency plan is classified as a corrective control. It is not designed to prevent or detect various disasters, but rather to limit losses resulting from commonly occurring disasters. Assuming disaster strikes, the presence of a computer contingency plan enables a company to quickly restore its capabilities & #8230; and to provide services and products for its customers efficiently and effectively.

(Cerullo, McDuffie & Smith, 1994. P.34)

Another important point made in the above article is that the preparation of such a contingency and recovery plan also motivates the company or organization to assess assets in terms of value and vulnerability. In other words, an understanding of assets derived from a good disaster recovery plan will include an evaluation and analysis of assets in terms of both vulnerabilities and potential areas of weakness in the structure of the organization.

Pundits stress that 'disaster recovery' are"…two vital words in today's security managers' and directors' vocabulary. Nowadays these people can't be without a disaster recovery plan or they may soon be without a job" (Murphy, 1991. P.60). It should also be noted that there are many different approaches to disaster recovery and each approach takes into account the type of business or organization and their particular vulnerabilities. For example, some recovery plans attempt to take into account every possible disaster scenario or contingency, from earthquakes to vandalism. This may be economically restrictive and time consuming. Others may take a more directed and specific approach, targeting the most common and obvious disaster scenarios in their particular context. However the important point to note is that failure to plan adequately for disaster recovery can have severe consequences, which can range from temporary loss of data, leading to loss of sales and contacts, to total financial collapse and penalties or fines, dependent on the extent of the disaster.

Brief Overview of disaster recovery planning

In recent years there have been as number of disasters in the United States that has tended to stress the importance of disaster recovery planning. Earthquakes in California, the Katrina disaster and many other have underlined the essential nature of DRP planning. Another example is manmade: "The terrorist bombing of the World Trade Center resulted in hundreds of millions of dollars in damages…" (Cerullo, McDuffie and Smith, 1994, p.34). As one article states:

What has become clear is that businesses must implement corporate-wide disaster recovery planning (DRP) that transcends data processing issues alone. DRP is a major corporate responsibility. The CEO must understand the major risks to the company and the potential consequences of disaster. Proper DRP addresses the needs of all departments and involves personnel from all areas of the company. Responsibility for DRP is not the sole responsibility of MIS management.

(Cerullo, McDuffie & Smith, 1994)

The important point being made by Cerullo, McDuffie and Smith ( 1994) is that the serious economic implications of disaster… [END OF PREVIEW]

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APA Format

Economic Impact of Disaster Recovery.  (2010, February 16).  Retrieved May 20, 2019, from

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"Economic Impact of Disaster Recovery."  16 February 2010.  Web.  20 May 2019. <>.

Chicago Format

"Economic Impact of Disaster Recovery."  February 16, 2010.  Accessed May 20, 2019.