Disaster Recovery Journal- Volume 13, Issue 3 - Summer 2004 Issue - Second Study Surveys Businesses Affected by WTC Attacks

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Summer 2004 Issue

DISASTER RECOVERY
JOURNAL

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EDITOR-IN-CHIEF
Richard L. Arnold, CBCP
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Janette Ballman
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MANAGING EDITOR
Jon Seals
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ASSOCIATE EDITOR
Ed Pearce, CBCP
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COPY EDITORS
Richard Sandhofer
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Pamela Clifton
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ADVERTISING
Robert Arnold
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_____________

Corporate

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Richard L. Arnold, CBCP
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Vice President
Robert Arnold
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Patti Fitzgerald, CBCP
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Merce Knese
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Laura Baugh
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EXECUTIVE COUNCIL
Jeff Dato, MBCP, KPMG
John Jackson, IBM
Edward S. Devlin, E.S. Devlin & Associates
James Hammill, CBCP, JMH Consulting Inc.
Pat McAnally, SunGard Availability Services
Brian Turley, Strohl Systems
Belinda Wilson, Hewlett-Packard

INTERNATIONAL
CONTACTS
England: Thom Hetherington
Business Continuity
Phone: 0161-237-1007
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Australia: Anthony J. Harvey
Journal of Business Continuity
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fax: 0011-613-953-0528
sector@notability.com.au

Japan: Shinji Hosotsubo
Quake Japan Co., Ltd.
Phone: 03-3215-2880
fax: 03-3215-2881

Brazil: Jose Carlos Ferreira
Disaster Recovery Mercosul
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www.drms.com.br

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SURVEY

Second Study Surveys Businesses Affected
By WTC Attacks

By KEVIN C. MILLER

According to famed industrial researcher and chemical engineer Arthur D. Little, “Research serves to make building stones out of stumbling blocks.”
Sept. 11, 2001, was the largest “stumbling block” the business continuity profession has ever experienced. In an attempt to lay the foundation for the future of the profession, Dr. Effy Oz of Penn State University was commissioned to study how the businesses that were directly affected by the tragedy have since fared.
The purpose of the study titled, “The World Trade Center Disaster: A Study on Business Continuity Planning at Organizations Directly Affected by the Sept. 11 Tragedy,” was to glean information on patterns of business continuity planning, as well as relationships among several variables and business continuity planning at these organizations. The effort started in February 2003.
The scope of the survey was limited to companies in one of the buildings that were severely damaged or destroyed. The New York Metropolitan Transportation Council’s report, “Demographic and Socioeconomic Forecasting Post September 11th Impacts,” was used to determine which businesses were located in the buildings. From February to October 2003, an effort was made to contact each of the companies and query the person responsible for business continuity planning.
The respondents were from 10 different industries ranging from banking and finance to education and government. The size of the company varied from four employees to more than 2,700 employees with organizational value ranging between $950,000 and $17 billion.
Among the questions the study participants were asked to answer were their annual sales and budget prior to and after Sept. 11, the extent of their continuity plans, and their insurance spending before and after the disaster.
The most significant observation in the study was that the organizations that responded increased their business continuity planning spending between 2001 and 2003. Prior to Sept. 11, these organizations spent on average 2.69 percent of their budgets on business continuity planning. They also indicated that, on average, they spent 0.87 percent of their sales on BCP.
After the disaster, the organizations are now spending a greater percentage of their sales and budget on BCP. On average, they now spend 5.8 percent of their budget and 2.8 percent of their annual sales on BCP. This was maintained at all levels as the minimum and maximum responses increased by at least 50 percent.
In addition to increased spending on BCP, the study also revealed that the majority of participating organizations that had a business continuity plan on Sept. 10, 2001, were able to regain their full business potential.
In all, 80 percent of the participating organizations have regained their potential to do business at the level of Sept. 10, 2001, in terms of human and other resources. Twelve of the 25 organizations had a business continuity plan in September 2001. Those 12 organizations still maintain a BCP, and two that did not have a business continuity plan in 2001 now have one. Ten of the 12 organizations that had a business continuity plan on Sept. 10, 2001, were able to regain their full business potential. Half of those that did not have a business continuity plan were still unable to regain their full business potential at the time of their response to the study.
Of those that have not fully recovered, two said they would never regain the potential; one said it would take another 120 days to regain. Another said it would take another 270 days; and one said it would take another 1,000 days to regain (from the day of responding to the survey questionnaire in mid-2003).
Even for the organizations that were able to recover their full business potential, the costs of recovery were staggering, reaching millions of dollars in some cases, even when an organization did not regain its Sept. 10, 2001, potential. On average, it cost the participating organizations $5,156,389 to recover their full business potential.
Not only did it cost these organizations a large amount of money to recover, their sales figures were also affected. Most of the organizations that responded suffered a decrease in their annual sales after Sept. 11. Pre-Sept. 11 sales figures for the respondents ranged from $270,000 to $16 billion with an average of $827 million. After Sept. 11, the respondents reported sales figures ranging from $85,000 to $17 billion with an average of $978 million.
Several large companies indicating increases in sales skewed these numbers. In fact, a closer look at the data shows that the majority of the organizations suffered a decrease in their annual sales after Sept. 11.
In order to mitigate the cost of future disasters, these organizations turned to their insurance companies for assistance. The majority of the participants increased their insurance spending both as a percentage of their annual budgets and annual sales.
Of the 16 organizations that reported on insurance spending prior to and after Sept. 11, nine organizations increased their insurance as a percentage of their total budget and seven increased insurance spending as a percentage of their annual sales. Typically, these organizations spent two percent of their 2003 budget on insurance or 0.79 percent of their total sales on insurance.
Aside from the numbers above, the clearest point of the survey is that additional research is needed to determine the exact influence the tragedy had on the businesses affected.
This study produced some valuable results, but because the actual number of responses was low, none of the results should be considered scientifically significant. The return rate on the surveys – 12 percent – was well within normal expectations, but since the scope was limited to only 208 organizations (restaurants, retail outlets, and newsstands were eliminated from the survey population) the actual number of responses was only 25. The information in the study provides only a general impression of what happened in these organizations.
A great majority of the organizations contacted for this study refused to participate, and in almost all these cases the reason for refusal was not given. One can assume that there are four major reasons: (1) an organizational policy not to participate in any research study; (2) the organization considers the data confidential despite confidentiality guarantees; (3) lack of time to fill out the questionnaire; and (4) the data was not available.
Until members of this profession begin to share information about BCP successes and failures, the foundation of the profession will be built upon weak information and best guesses.

Kevin C. Miller has been a communications and journalism professional for more than 10 years, including five years as a spokesman and journalist for the U.S. Coast Guard. He has been published in magazines and newspapers internationally, and is currently the public relations coordinator for Strohl Systems, a global leader in the business continuity planning software and services market. The complete study can be obtained by visiting Strohl’s Web site at www.strohlsystems.com. Miller can be reached at kmiller@strohlsystems.com.