Although it can result in serious financial losses, it is often the negative impact that down time can have on a company’s reputation and legal standing that is of greater concern to business continuity practitioners.
“There are quantitative losses and there are qualitative losses, like impacts to your reputation or breaches of contracts,” Jacqueline Rupert, Managing Consultant for Avalution, said. “There may not be costs associated with them but long-term business partner agreements could be broken.”
Reputational damage as a result of down time may not be directly quantifiable, but it can effect finances in the long run, especially for companies that rely so heavily on brand recognition.
“It goes hand in hand with financial impact,” Rupert said. “If a company has a negative reputation, potential customers are going to start looking at their competitors. The downstream impact could be loss of market share or sales. It’s hard to quantify reputational damages. For companies that have very strong branding, protection is huge for them.”
Down time can also have legal repercussions especially for financial institutions, power utilities and any other organizations that must adhere to government regulations.
“There could also be legal and regulatory impacts,” Rupert said. “Maybe they won’t result in a fine, but you could be breaking the law or you could be out of compliance with a regulatory requirement that you need to adhere to and your business could be shut down.”
Even those that aren’t regulated by the government could face legal backlash if down time causes them to breach one of their contracts with a customer.
“There are some companies that are required by their customers to have a business continuity plan,” Rupert said. “It’s not necessarily a regulatory issue, but it could become a legal issue if a contract is breached.”
Rupert said it can be difficult to say what the exact impact of down time on reputations is because it varies from one business to another. She recommended business continuity practitioners perform a detailed study on their organization and presenting the findings to management to determine what is and what is not an acceptable loss.
“You need to do a study of your organization to understand what the implications of downtime are because the impact is different for each organization,” Rupert said. “Once you understand the impact, management can get together and discuss what is tolerable and what is not. For some organizations, having a billion dollar loss is a drop in the bucket but if their CEO is on the front page of the New York Times saying they did something terrible it is very impactful. You have to understand what’s important.”
Regardless of the size and scope of an organization, Rupert said one of the most important aspects of protecting your business’s reputation is having a well establish crisis communications plan.
“A big part of protecting your reputation is having a strong crisis communications plan,” Rupert said. “Everyone understands that incidents happen. For example, Hurricane Sandy was completely out of everyone’s control, but the way that companies handled it determined the way people thought about them afterwards. Companies that say ‘no comment’ are usually the ones that end up with negative impacts to their reputation.”