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You just never know when or why you'll lose computer data.

If a network or Web site goes down, a business can lose millions of dollars in revenue quickly.
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Without backup, the price tag goes higher. International Data Corp. says it costs firms with data backup $1.1 million in revenue when their network goes down.

For companies without data backup, it's $4 million per incident.

Clearly, firms need to invest in data recovery systems. But how much should they spend?

Tim de Lisle, a consultant at Corigelan Managing, says some companies are spending too much. Many fall prey to vendors' scare tactics, he says.

As a result, they buy recovery software, computers and services they really don't need, he says.

"Rather than go through a diligence process, they've signed up for a solution that's pretty expensive," de Lisle said.

Understand Your Business

Meta Group analyst Mark Vanston in Stamford, Conn., says it's important before buying anything to study what others are doing in the same market.

Financial firms, for example, have to satisfy regulators.

Others, such as retail firms, may need to satisfy only shareholders. Every situation is different, Vanston says.

The problem, he said, is that "some people don't understand what business they are in."

He cites the example of a transport company, a firm that often nets thin profit margins.

"Let's say you could transport goods from the East Coast to the West Coast for $1 a pound, about the same as your competitor.

"If you add 5% to your information technology budget, you're now charging $1.10 a pound. If your rival doesn't do that, you lose business," Vanston said.

Extreme Example

How much should a company spend on recovery gear and services?

"You can relate it to your business," said Vanston. "Typically, if you are a financial or other high-risk industry, you should spend in the range of 5% to 6% of your total information technology budget. If you are a manufacturer, typically it's around 4%."

What should a company look at when starting the process?

Vanston says keep three key variables in mind: threat, vulnerability and value. All of them relate to risk.

To be at risk, there must be a real threat, and a company's assets must be vulnerable.

For example, the building could be flooded. And the assets must have value.

He cites nuclear war as an extreme example.

"How do you protect against something like a nuclear strike? My answer is, 'Why would you bother?' Nobody is coming to work the next day. That protection should be zero," he said.

Corigelan's de Lisle agrees that a company that hasn't done its homework stands to lose a lot of money.

He cites a large manufacturing firm that hadn't done proper research before starting to shop around for disaster protection.

"We talked to their business people about the recovery time objective," he said.

That's a company's targeted time limit for getting critical systems up and running.

"We found it was 48 to 72 hours in most cases. That's longer than they thought. They thought they had some departments that had to be up in four hours. That was good news, and a surprise, for them," de Lisle said.

Corigelan came up with what he describes as a hybrid approach.

Instead of putting in a new system, the company beefed up its backup process and retooled its network.

The result?

"They saved 50% of what they thought they would spend. They saved over half a million dollars, minimum," de Lisle said.

Tight Budgets

IBM's John Jackson, who heads up disaster recovery services marketing at Big Blue, agrees it's crucial for firms to do their homework.

"The purpose of business impact analysis is twofold. First is to ask: What systems are crucial to get up and running? And second is to set the stage for selecting a vendor to supply those systems," Jackson said.

For vendors like IBM, governments are key customers.

The Ohio treasurer's office last year decided to upgrade its IT systems.

Like nearly every state, it was on a tight budget. It turned to Corigelan for assistance.

"First thing we did was to review our current processes and procedures," said Jamie Davis, director of information technology services for the Ohio treasurer's office. "And we took a look at the disaster recovery plan we had in place. It was good, but we found it could use some improvement."

Ohio Treasurer Joseph Deters says he had two goals in mind. First, he wanted to protect financial data. Next, he wanted to make sure the state could keep doing business, no matter what.

Seek Expert Help

With Corigelan's help, the state decided to use an existing facility some distance from the treasurer's office in the state capital, Columbus. It will be able to run the state finances if the capital's computers go down.

And this plan will save the state money, Davis says.

Ohio uses gear from a lot of different companies. That isn't likely to change, Davis says.

To keep costs down, he doesn't plan to put in a new system.

Instead, he said, "We will end up expanding and leveraging what we've got."

Like IBM's Jackson and Corigelan's de Lisle, Davis says companies or other enterprises beginning the process should first take stock internally of what they have, and then look for expert help to evaluate what they need.

That way they get what they need at a price they can afford.

Copyright © 2004. Investors Business Daily.