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The 80 percent myth…

You don’t have to be involved in business continuity long before you come across the profession’s very own urban legend: the 80 percent statistic. By Mel Gosling.

FOR ALL READER COMMENTS ON THIS ARTICLE, CLICK HERE

I was extremely pleased to see that The Times newspaper distributed a supplement on Business Continuity and Risk Management on 12th February, which had been produced by Media Planet. I was however, extremely depressed when I read some of the content, and in particular the advert on the front cover that stated “80% of businesses affected by a major incident close within 18 months”.

Producing and distributing supplements like this is an excellent way of gaining the attention of decision makers and should be applauded. Unfortunately, when a decision maker reads a headline statement in such a supplement that they know to be incorrect, they will dismiss the whole content out of hand.

An article in the supplement, written by Richard FitzHugh, the event programme director of Business Continuity Expo 2007 goes one step further in the second sentence stating that: “It’s a fact that 80 percent of businesses affected by a major incident close within 18 months, if they do not have a contingency plan in place.” I must confess that after reading this statement, even I, who has a professional interest in what was being said in the supplement, nearly put the whole thing down.

I have read many explanations of where this 80 percent myth originates from, but have never managed to find the original source. It has, though, been repeated again and again over the years to frighten executives into developing business continuity plans, and just when I thought that the business continuity profession had decided to stop dragging out such a dubious statistic it has reappeared in all its glory.

I am willing to stand corrected and eat humble pie if someone can produce evidence to show that the 80 percent myth is a fact, or even if it comes close to a fact, but from my experience it is simply wrong. To back this up, I will ask you to consider three examples:

Foot and mouth – the foot and mouth outbreak in the UK in 2001 was a catastrophe for the farming and rural communities and businesses, and some farmers and businesses did close. I would say, from my personal experience in the South Lakes area of Cumbria, which is where I live, that 100 percent of farmers and small rural businesses had no contingency plans, and that less than 10 percent closed within 18 months.

Carlisle floods – the centre of Carlisle was flooded in January 2005, which resulted in thousands of people being evacuated and every business in the city centre being affected. From my personal contacts with businesses in the area, and my knowledge of the city centre, I would estimate the proportion of businesses that did not have contingency plans to be more than 90 percent and estimate that less than 20 percent closed within 18 months.

Omagh bombing – in 1998 a terrorist bomb exploded in the centre of Omagh killing 29 people, injuring 220 others, and wrecking many buildings in the vicinity of the blast. In the autumn of last year I visited Omagh to build a business continuity plan for a local insurance broker, and from the discussions that I held when I was there can tell you that in all likelihood 100 percent of the businesses affected did not have contingency plans in place, and that the majority were still trading eight years after the event.

I’m sure that many of you reading this can cite other examples, and it will be interesting to see how many businesses affected by the Buncefield explosion on 11th December 2005 are still trading on 11th June 2007 – not long to go now to find out!

MAKE A COMMENT

Mel Gosling is a Member of the Business Continuity Institute, and managing director of Merrycon Ltd, which specialises in providing Business Continuity products and services. He can be contacted by email at melgosling@merrycon.co.uk

Reader comments: added 9th March

Wayne Harrop (see comments below) wrote that 'US congress approved research which supports the ‘Back to Business Act, 2007’. Section two identifies accepted statistical data that parallels the 80 percent business failure rate over a two year period, quoted as follows...

“Congress finds that:
(1) 43 percent of businesses that close following a natural disaster never reopen.
(2) An additional 29 percent of businesses close down permanently within 2 years of a natural disaster.”

Who did the research? How was it performed? Was there "controlled research, evidenced findings or independent peer review."

The U.S. Congress has been mislead before - more than once as it happens.

I also challenge people to ‘cite your source.’

I have a page on my website (http://johnglennmbci.com/quotes.html) which lists failure-after-event ‘statistics.’ The source of most seem to be people selling business continuity.

Bottom line: I agree with Mel.

John Glenn, MBCI
Certified Business Continuity Planner

The first time I came across this very fine quotation was in around 1983 in a disaster recovery report from Amdahl. At the time it was a magnificent addition to a very meagre fund of attributable quotations even though it came with a number of attaching caveats which reduced its significance considerably. As Mel indicates, it has been repeated endlessly since then and, surprisingly, by a number of parties who should know better. It still brings a wry smile to my face when I see it regurgitated.

Mick Williams
Sales Director
ICM Business Continuity Services plc

Back in the 80's David Davies, who then worked for HRGM, the global insurance broker, became a pioneer in addressing the insurance issues around business continuity and disaster recovery. He contributed to numerous papers on the subject and in fact we were both widely published in the specialist and more general IT/Insurance press of the time.

I believe the original statistic came from Chubb Insurance and was based upon analysis of their claims records following major fires and other property type losses across their portfolio of risks in the USA. I seem to recall that Ken Wong was the speaker who most quoted the figure which has become the myth everyone in the business has quoted since.

I recall speaking at an Institute of Internal Auditors Conference at the London Hilton (when Stephen Hinde was their president) and using this figure in my presentation…it raised no eyebrows then but was only offered to the audience as a guide based on best research available at the time. It still amuses me to read this figure 20+ years on knowing full well no-one has ever validated it. Have we really moved on so little in all this time?

Yvo Henniker-Heaton

I do hate it when professionals shoot from the hip without, apparently, trying to establish the facts. Yes, we should challenge statistics – but first, establish the source. And some sources of the 80 percent (or thereabouts) myth are highly credible. There is ample research indicating a high level of business failure following disaster (and yes, some of these may have failed anyway). One research paper with similar statistics was produced by IBM and Cranfield called, as I remember, ‘A Bridge Too Far’ in about 1993. Similar numbers were published about the same time by Chubb Fire.

Even cursory research will reveal a variety of authorities quoting broadly similar statistics. Some of these (Googled in a few minutes) are produced below. No, I haven’t checked out all the original sources quoted….. I not a conspiracy theorist, either!

- 80 percent of companies without well-conceived data protection and recovery strategies go out of business within 2 years of a major disaster.
Source: US National Archives and Records Administration.”
http://www.datmgm.com/smb_wbup.htm

- 70 percent of companies go out of business after a major data loss (Source, DTI)
http://www.datacover.co.nz/statistics.html

- “Within two years after Hurricane Andrew struck in 1992, 80 percent of the affected companies that lacked a business continuity plan failed (FEMA).”
http://www.itaa.org/isec/itaa011402.ppt

- “Research by IBM (Varcoe, 1993) showed that 80 per cent of organisations without relevant contingency plans who suffered a computer disaster went bankrupt ...”
http://www.emeraldinsight.com/

- “A recent study from Gartner, Inc., found that 90 percent of companies that experience data loss go out of business within two years..” (Written April 5, 2005)
http://www.nbnnews.com/NBN/issues/...

- “But when Gartner predicts that two out of five enterprises that experience a disaster will go out of business within five years of the event, companies might want to sit up and take notice.”
http://www.itaa.org/isec/itaa011402....

- “According to the Association of Records Managers and Administration, about 60 percent of businesses that experience a major disaster such as a fire close within two years. According to Labor Department statistics, over 40 percent of all companies that experience a disaster never reopen and more than 25 percent of those that do reopen close within two years.”
http://www.damicon.com/resources/Disaster_Survival.pdf

- 60 percent of companies that lose their data will shut down within 6 months of the disaster. 93 percent of companies that lost their data center for 10 days or more due to a disaster filed for bankruptcy within one year of the disaster. 50 percent of businesses that found themselves without data management for this same time period filed for bankruptcy immediately.
(National Archives & Records Administration in Washington)

- Studies conducted for similarly developed societies show for example that 80 percent of companies having an extended disaster go out of business within five years (University of Minnesota); that 50 percent of companies having a disaster without a plan go out of business within two years (IBM); that from companies with a major disaster, 29 percent will close within two years while 43 percent never reopen (DATAPRO). After a major disaster an average company will lose at least 25 percent of the daily revenue in the first six days, while over 40 percent will be lost if a disaster last [sic] up to 24 days (University of Texas).” Source: Le Secretariat, La Convention Européenne, Bruxelles, December 2 2002 (05..12) CONV 444/02
http://register.consilium.eu.int/pdf/fr/02/cv00/00444f2.pdf

- “Companies that aren't able to resume operations within ten days (of a disaster hit) are not likely to survive. (Strategic Research Institute)”
http://www.pctracker.info/stats.htm

-“According to Contingency Planning Research & Strategic Research Corporation: 43% of U.S. companies experiencing disasters never re-open, and 29% close within 2 years”
http://www.meganet.net/pdfs/onlinebkresearch.pdf

- “30 percent of all businesses that have a major fire go out of business within a year. Seventy percent fail within five years. (Home Office Computing Magazine)"
http://www.dscorp.net/infocenter.php?sub=3

- “According to Aveco, 20 percent of companies will suffer fire, flood, power failures, terrorism or hardware or software disaster. Of those without a DRP:
* 80 percent will fail in just over a year
* 43 percent will not even reopen
* 93 percent that experience a significant data loss are out of business within five years.
http://cincinnati.bizjournals.com/cincinnati/stories/2004/08/09/focus5.html

- “For any business, large or small, the worst thing that can happen is an unexpected event that stops you trading or drives your customers away. Some 80% of companies that suffer a major disaster and don’t have any form of contingency planning go into liquidation within 18 months.”
http://www.lloydstsbbusiness.com/media/l....

Andrew Hiles, FBCI
Director, Kingswell International

Reader comments: added 27th February

Following the publication of my article on the “80% of businesses affected by a major incident close within 18 months” myth on the Continuity Central website, I have received numerous emails supporting my comments, and quite a few suggestions as to where it might have originated.

Nobody has come forward to either support the myth or offer any evidence, and I’ve received lots more examples of events that counter the myth. I must therefore conclude that it is utter rubbish.

Here are the suggestions that have been sent to me about its origins.

Studies in the US on business failure
I think the source of this comes from studies in the US on business failure in general. These studies and those repeated in the UK tend to find that 80 percent of businesses fail in the first five years, and of the survivors a further 80percent fail in the next five years. Interestingly, the source of failure is resoundingly that businesses owners throw the towel in themselves and they close with no outstanding debt and this has nothing to do with any sort of disaster.

SME research
When I was young, my recollection is of a particular piece of research, within a specific scope (eg it could have been SMEs but I can't remember as it's so long ago), where this was the headline finding. This study is now many years old and I actually thought it went something like: "2 out of 5 business will fail very quickly and another 2 will fail within 18 months." Hence the 80 percent figure.

NFPA newsletter
This statistic I first came across 30 years ago in the NFPA newsletter, which I personally thought ridiculous. I wrote to the NFPA asking for the source and in reply even got an apology and a categoric withdrawal of the claim.

Manchester bombing
We believe the roots of this are in some research undertaken by a large IT DR vendor following the Manchester Bombing by the IRA in June 1996. As you will no doubt recall this was a 3000kg Lorry Bomb and it was estimated that up to 50,000 square metres of retail space and nearly 25,000 square metres of office space have subsequently needed to be reconstructed. This rebuilding required some to although most was complete by the 1998 Commonwealth Games. HMG and the EU contributed to the costs and much of the urban regeneration of Manchester’s centre was linked to this.

DTI
I think that you'll find something along those lines in the DTI Information Security Breaches Survey from either 2000 or 2002.

Mel Gosling

Mel should note the following US congress approved research which supports the ‘Back to Business Act, 2007’. Section two identifies accepted statistical data that parallels the 80 percent business failure rate over a two year period, quoted as follows...

“Congress finds that-- (1) 43 percent of businesses that close following a natural disaster never reopen. (2) An additional 29 percent of businesses close down permanently within 2 years of a natural disaster.”

The above congress findings, although specific to the gulf coast suggests a 43% + 29% failure rate, when combined this figure equals a 72 percent total. The full viewing of this material can be found at http://thomas.loc.gov/cgi-bin/query/z?c110:S.537.IS

Additionally, personal experience cited by Mel in support of his argument, and in relation to FMD, 2001 cannot be construed as anything beyond well meaning but otherwise subjective opinion. Under the absence of controlled research, evidenced findings or independent peer review any such proposition of a <10% failure in businesses attributed to FMD 2001 in Cumbria cannot be independently verified. Without the strength of skilful research no wider trend can be determined or offered up as accurate. However, I fully support Mel in his view that it is vital to ensure that we all evaluate and deliver an accurate argument, which is the essence of what Mel is suggesting. This is particularly important when considering the relative youth of BCM as a profession, and its credibility significantly resting on a robust and accurate argument.

Wayne Harrop, B.A Hons, MBCI, MEPS, MIEM, MICDDS
Senior Lecturer in Business Continuity Management
Centre for Disaster Management

I think that the statistic originated from some research done following the Bishopsgate bomb, since I remember it being around this time that it was quoted first. However, this did not take into account that many of these might have been small businesses like shops where a business continuity plan would have been irrelevant, nor small businesses who might have gone bust anyway. Certainly I also get fed up with the same old trite statistics being quoted and it is clearly evident that it is not true; it depends on the disaster, it depends on the business, it depends on whether any contingency plan would have helped. I think the research on stakeholder value by Deborah Pretty is more informative, but again this is limited in that it concentrates on very large events. The fact is that organizations who plan do better than those who don’t – but putting metrics on it is very difficult.

Dave Austin
Head of Continuity Services
Insight Consulting

I agree with Mel. It is about time that we start to deal with the myths that have grown up around this type of planning and for planners to start to behave as professionals. Most of these, and there are plenty of other myths that are not statistically based, have been accepted by planner blindly. We have not even demanded empirical verification of these ‘facts’ that are now turning out to be more mythical than factual. More importantly, these myths cause management to react to the whole concept negatively because of these misconceptions. What is probably more troubling than the myths themselves is the fact that the professionals in this industry are not aware enough to actually see that these myths are hurting them not helping them get their message to business executives. There are plenty of good logical business reasons to pursue business continuity planning, unfortunately the vast majority of ‘planners’ would rather try to scare executives than reason with them. It is time to turn the argument positive, if we hope to get management enthused about this planning effort.

John M. Stagl, CBCP
BELFOR USA

I totally agree with Mel. This 80 percent statistic is appearing all over the place, I too believe it is false. What we do know from our research is that every year 1 in 5 businesses suffer a disruptive event which costs money and reputation. Good BCM can minimise the effects of theses disruptions. However if a business is trading close to the edge, a disruption may be the 'final straw.......' but not the root cause of the failure.

Whenever I see the '80%' statistic being used I challenge it, all professional BCM practitioners should do the same.

John Sharp
Policy & Development Director
Continuity Forum

Date: 19th Feb 2007• Region: UK •Type: Article •Topic: BC general
UPDATED 27TH FEBRUARY 2007
UPDATED 9TH MARCH
2007

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