The Consequences of Losing Your Business Data

Data loss is a major challenge to the business world. Everyone is at risk. Even if you haven’t been affected, you are not safe.  If you didn’t know, hundreds of businesses are closed each year owing to data loss. A Gartner report estimates that 70% of small businesses that experience data loss close their doors permanently within 12 months. This is a big number. But it’s even worse in medium-sized companies where 94% of businesses that encounter serious data loss usually go out of business, 43% never open again, and 51% close down within two years of the incident.  The above report also indicates that of all businesses that lose data for more than 10 days, 93% end up filing for bankruptcy within just a year of the loss. Half of those companies are usually forced to file for bankruptcy almost immediately especially if the company didn’t have a solid corporate data management strategy.

 

The Consequences of Losing Your Business Data

The question you might be asking is why data loss is so serious. Why would so many businesses close down after experiencing data loss?  The answer lies in the following five points that, together, constitute the real cost of data loss:

Data Loss Impacts on Business Operations

Data loss can impact business operations in three main ways. First, the lost data may be unrecoverable. If this happens, critical business records might be lost forever. Any business process that depends on such records might thus be impeded.

Secondly, the lost data might be recoverable but might take a lot of time to restore. This is the most common scenario in companies that back up data in an outside location, separate from the primary source. The problem is that sometimes not all data may be recovered.

And third, data loss can also result in unavailability of data, temporarily or permanently. When this happens, applications directly dependent on the unavailable data may fail. This is especially the case in relational databases. For instance, if the central database containing customer information becomes unavailable, then the sales system might also fail.

Data Loss Impact on Sales

A business can also suffer significant harm when data loss makes it impossible to interact with customers, sometimes resulting in lost sales and, by extension, lost revenue.

In the digital economy, email has become the primary channel of communication between businesses and customers. This is especially true in Business-to-Business (B2B) relationships where business trade directly with other businesses. Losing a business-critical email attachment may mean a lost lead/prospect which in essence might count as a lost sales opportunity. For instance, if there is a hard drive crash, a company may fail to submit a bid in time, resulting in a lost sale.

The same applies when a data breach is directed at a call center or CRM provider. An increasing number of small businesses have been turning to independent call centers for customer support assistance and Customer Relationship Management (CRM) providers for help in managing customer relationships. In a worst-case scenario, the harm resulting from an attack on either of these two might be enough to propel a small business into bankruptcy.

When Data Loss Completely Cripples Business Operations

In the event of extreme data loss such as the loss of an entire database, even temporarily, it isn’t uncommon for the affected business to fail at multiple levels. The company may be rendered helpless, unable to fulfill orders and struggling to update employee records. Producing financial records and providing customer services may also be impossible.

This is because technology has become the backbone of most business operations and most of the operations are usually tied together through a central IT system. Therefore, a disruption to the IT system might even affect the phone system and manufacturing processes. As a result, employees may be idled for long periods while the lost data is recovered, thus affecting productivity.

Loss of data can also make it nearly impossible for business owners/manages to measure performance. Most modern businesses rely on innovative technologies such as time tracking tools to measure the performance of employees. Any data loss that affects the data collected using devices may therefore make it very difficult to measure employee performance. Destroyed, damaged, or altered financial, market, and manufacturing data can also skew data and by doing so disrupt decision making.

Potential Theft of Information

Data loss can also take the form of data theft where a hacker knowingly breaks into a computer or network and steals business secrets. These secrets may include business plans, product designs, and computer source code among others. The economic impact of information theft is difficult to measure because, in most cases, the harm can manifest itself over a long period.

However, such theft usually causes three known effects; lawsuits, breach of regulator contract, and loss of business. Lawsuits have been covered in depth in the next point. As for breach of contract, every industry has regulators. In Canada, the Personal Information Protection and Electronic Documents Act (PIPEDA) states clearly that it is the duty of private businesses to “protect though appropriate security measures” all personal information collected from customers. When a hack results in loss of personal data, the affected organization will have breached the PIPEDA agreement.

Loss of business, on the other hand, isn’t uncommon after data loss incidents especially if the loss was a result of a preventable event such as a security breach. Customers may feel that the company didn’t take adequate measures to safeguard their information and may therefore choose to discontinue doing business with the company for fear of a similar event reoccurring in the future.

Costs Resulting from Lawsuits and Fines

Finally, there is always the likelihood of a lawsuit and hefty fines when a company experiences data loss. In Canada, these lawsuits aren’t unusual. For instance, in 2011, an Ontario Superior Court granted a certification of class action against Durham Regional Health when the health facility lost health records belonging to 83,500 patients. In the suit, the plaintiff sought $40 million in damages. In a different case, Honda Canada was forced to pay $200 million in damages and faults after the personal information including names, addresses and financial account numbers of more than 283,000 customers were accessed by hackers.

These might be examples of bigger companies but they nonetheless show us that any business can end up in the corridors of justice and face hefty penalties in the event of loss of data belonging to customers.

However, it’s usually not just customer information. Even shareholders can sue you. And you can also be sued and forced to pay untold amounts in fines for failure to perform duties outlined in a contract. A lost order can easily result in a customer suing you for direct and collateral damages.

Summary

The main take away from these five costly consequences of data loss is that businesses bear huge responsibility in protecting the data in their ownership. They must fix all loopholes to improve data security, otherwise they can face serious operational and legal ramifications.  If you are serious about protecting your business data, select an IT Services company to help you double-check your systems, recommend solutions to potential weak links in your security chain, and help you develop an organization-wide policy to help prevent data loss.

Frontier Solutions is Calgary’s outsourced IT services provider. Contact us to set up training to educate your staff about data backup and protection, or to help you with your corporate IT needs.

Shaun Rowsell