The Business Case for Preparedness

Resilience Can Dramatically Reduce Business Interruption Losses

May 24, 2008 12:27 AM

The model-based simulation of a two week blackout in Los Angeles underscores the value of resilience with an 86 percent reduction in business interruption loss based upon adoptive resilience strategies.

Source: "Business Interruption Impacts of a Terrorist Attack on the Electric Power System of Los Angeles: Customer Resilience to a Total Blackout", Adam Rose, Gbadebo Oladosu, Shu-Yi Liao, Carnegie Mellon Electricity Industry Center, October 14, 2005

Key Points:

* This paper summarizes the development and application of a computable general disequilibrium model to estimate the business interruption impacts of the terrorist attack on the electricity power system serving Los Angeles County. The model has been especially designed to incorporate engineering and spatial aspects of the electric power system in the context of the regional economy, to reflect the several types of disequilibria that an electric power disruption will bring about, to include the various inherent 28 and adaptive resilience responses at the individual, market, and economy-wide levels, and to capture both partial and general equilibrium effects. The simulation of a two-week total electricity blackout in LA County amounts to a business interruption loss of $20.5 billion without any resilience adjustment and $2.8 billion with the inclusion of several types of resilience, most prominently the rescheduling (recapture) of production after electric service is restored. The results indicate that inherent aspects of the electricity economy relationship (e.g., interfuel substitution) and adaptive behavioral responses (e.g., conservation, on-site electricity generation) can reduce the potential disruption impacts by 86 percent."
* In short, companies have started to realize that they participate in a greater ecosystem-and that their IT systems are only as resilient as the firms that they rely on to stay in business" (Corcoran, 2003; p. 28).

This is the link to the working draft, not to be quoted:
http://wpweb2.tepper.cmu.edu/ceic/SeminarPDFs/R_O_L_Bus_Int10_14.pdf