Cost of data loss
by James
Walsh
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Statistics: Data loss effects on companies fall under two categories of SMBs and large corporate houses. The latter can recover from data loss. They have the manpower and financial resources to do so. This is possible as multinationals have overseas branches. They simply transfer required manpower and finances to the devastated site and start again.
But this scenario plays out differently for SMBs. The IT report of 2002 states the following facts:
- 43% of SMBs suffer data loss due to human error
- 1% of SMBs regularly back up their data
- 25% of SMBs shut down only to reopen on the sixth day of closure
- 18% permanently close down
- 12% struggle to remain in the market and usually shut down permanently after one month of reopening
Data Protection Act of 1988: The Act states that data protection and security are a personal issue. It has to be handled by the companies themselves. All data security measures have to be compliant with the EU Data Control and Security Measures as released in 2005. The Act further states that the government is not responsible for the loss of data under any circumstance.
This rules out government support and financial resources in case of data loss by natural or man-made disasters. The Act argues that since data is the personal responsibility of the firm, its security has to be the domain of the firm. Thus, companies have to protect their data under all circumstances.
Cost of Data Loss: To calculate the total cost of data loss, it is important to start at the shopfloor. Data loss has ripple effects. This means that it has the potential to paralyse and devastate all company operations.
Effect on Employees: The loss of data has a direct effect on employees. They are the front line executives who operate the equipment and processes for the company to function. Thus, when data is lost, their work or function stops. Employees find themselves with no work. They sit idle leading to discontent and resentment. Employee unrest leads to a slide downhill of employee motivation and focus. Their work hours get cut and so does pay. As the company struggles to stay afloat, employee salaries go down.
Many employees lose their jobs. The company begins to shut down diversification projects and personnel are given the golden handshake. Employees are let go without retirement or downsizing incentives. This further leads to a decline of employee morale.
- Loss of employee motivation
- Employee and project downsizing
- Loss of production
- Employee unrest and anger
- Employee training and development stops
These effects have a direct bearing on the profit ratio of the company. This also includes the financial goodwill and market standing of the company.
Profits and Market: Data loss ensures that everything begins to slide downhill. Production figures begin to slip. This adversely affects the profit situation. Profit and loss figures begin to meet and soon the company can barely manage to meet estimated production figures. It has to let go of qualified personnel. Soon the company begins to take loans from other financial institutions in the market.
But downsizing cannot ensure that production improves. The situation comes when the company is unable to meet its loans. To make matters worse, it takes another loan to pay off the first one. The financial goodwill and market reputation of the company suffer. On the other end, the company starts losing its consumer base. Rival companies begin to emerge. And, soon, the company does not even have the resources to conduct daily operations. The company is forced to call bankruptcy and close down.
Cost of Data Recovery: Usually, companies attempt to size up and manage the situation at the beginning. They call in professionals to start the process of data recovery. But this too has a considerable monetary effect on the company. On one hand, it has to deal with data loss effects and dwindling finances. At the same time, it has to incur the cost of data recovery. This is a tough proposition.
Even if the company does recover the data, it does not have the human and financial resources to go back to its original position. It has to start afresh with new personnel. It has to build its market value again. All this does increase the strain on the company finances.
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