Unplanned technology failure an overlooked critical business risk: Marsh

Unplanned technology failures are a critical threat to organizations’ supply chains, but one that’s often overlooked compared with natural disasters or political disruptions, notes a new research report from Marsh.

Marsh cites research from the Business Continuity Institute’s Supply Chain Resilience 2012 report, which said that IT outages outpaced all other sources of disruption, including severe weather, transportation disruptions and product contamination.

“Although data privacy is a critical risk in today’s technological business environment, the impact of technology failures on supply chains and general operations is a potentially more severe threat that many businesses may be overlooking,” noted Bob Parisi, network security and privacy practice leader at Marsh.

The average business can lose 545 person-hours each year in employee productivity because of IT downtime, the report says, citing research from CA Technologies. A 2012 report from Aberdeen Group also suggests that data centre downtime can cost businesses $138,000 per hour, according to report.

“Businesses can also suffer loss of revenue and reputational damage, particularly from extended or repeated outages,” it adds.

Although many cyber insurance policies have evolved to cover a range of technology failures, that coverage should only be one part of a greater risk management strategy, Marsh says.

In its report, Marsh suggests the following steps to prepare for an IT disruption and to mitigate potential business impact:

• Determine the criticality of various IT systems to ongoing operations and whether alternatives are available or enhanced protection is possible.
• Develop and test business continuity and crisis management plans that specifically address IT outages.
• Evaluate claims preparation and management plans.

“While cyber insurance can offer financial protection in the event of an IT outage, it alone is not an alternative to solid risk management,” Parisi added. “With effective planning inside a comprehensive risk management program, businesses can better prepare for IT outages and minimize their impact on business operations, revenues, and reputations.”