Acme manages their own data center on-site at their regional headquarters. They

Question

Acme manages their own data center on-site at their regional headquarters. They estimate that the equipment and data housed in the data center is worth $15,000,000. They are concerned with a number of risks: sabotage, fire, tornado, and prolonged power outage. They estimate that they would lose about 25% of the equipment/data in the case of sabotage, 80% in the case of fire and tornado, and 50% in the case of a power outage. They estimate that the chances of each risk occurring is only 25%. In an effort to protect their data, they are considering a single countermeasure. The countermeasure involves establishing a disaster recovery site where they could store backups of all their data. The annual cost would be $1,000,000, but it would decrease the loss of data/equipment to 5% in the case of sabotage, 50% in the case of fire and tornado, and 15% in the case of a power outage.

Determine the Annualized Loss Expectancy for each risk factor, before any countermeasures are applied as well as adjusted for the proposed countermeasure. Should they implement the proposed countermeasure?

Explanation / Answer

Before the counter measurement:

Loss by any disaster = (chances of disaster)*(destruction by disaster)*(net worth)

So,

loss due to sabotage: (0.25)*(0.25)*15,000,000 = 937,500

loss due to fire: (0.25)*(0.80)*15,000,000 = 3,000,000

loss due to tornado: (0.25)*(0.80)*15,000,000 = 3,000,000

loss due to power outage: (0.25)*(0.50)*15,000,000 = 1,875,000

Total Cost to company: 8,812,500

After the counter measurement:

loss due to sabotage: (0.25)*(0.05)*15,000,000 = 187,500

loss due to fire: (0.25)*(0.50)*15,000,000 = 1,875,000

loss due to tornado: (0.25)*(0.50)*15,000,000 = 1,875,000

loss due to power outage: (0.25)*(0.15)*15,000,000 = 562,500

total cost to company = loss + cost of countermeasurement = 5,500,000

So they should implement the proposed counter measurement

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